G.R. No. 125766.

October 19, 1998

FELICIDAD L. ORONCE and ROSITA L. FLAMINIANO, Petitioners, v. HON. COURT OF APPEALS

DECISION

ROMERO, J.:

The issue of whether or not a Metropolitan or Municipal Trial Court may resolve the issue of ownership of
the property involved in an unlawful detainer case has been discussed by this Court in a number of cases,
the more recent of which is that of Hilario v. Court of Appeals.1 Jurisprudence on the matter has in fact been
reflected in the 1997 Rules of Civil Procedure under Rule 70, to wit:

SEC. 16. Resolving defense of ownership. 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. (4a)

These developments in the law notwithstanding, there remains some misconceptions on the issue of
jurisdiction of inferior courts in ejectment cases where ownership is raised as a defense that the Court deems
proper to clarify in this petition.

Private respondent Priciliano B. Gonzales Development Corporation was the registered owner of a parcel of
land with an area of 2,000 square meters. The land with improvements, covered by Transfer Certificate of
Title No. RT-54556 (383917), is situated at No. 52 Gilmore Street, New Manila, Quezon City.

In June 1988, private respondent obtained a four million peso - (P4,000,000.00) loan from the China
Banking Corporation. To guarantee payment of the loan, private respondent mortgaged the Gilmore property
and all its improvements to said bank. Due to irregular payment of amortization, interests and penalties on
the loan accumulated through the years.

On April 13, 1992, private respondent, through its president, Antonio B. Gonzales, signed and executed a
Deed of Sale with Assumption of Mortgage covering the Gilmore property and its improvements, in favor of
petitioners Rosita Flaminiano and Felicidad L. Oronce. 2 The deed, which states that the sale was in
consideration of the sum of P5,400,000.00,3 provided inter alia that

x x x the VENDOR (PBGDC) also guarantees the right of the VENDEES (petitioners) to the possession of
the property subject of this contract without the need of judicial action; and possession of said premises
shall be delivered to the VENDEES by the VENDOR at the expiration of one (1) year from the date of the
signing and execution of this Deed of Sale with Assumption of Mortgage.

On the other hand, petitioners bound themselves to pay private respondents indebtedness with China
Banking Corporation.

In fulfillment of the terms and conditions embodied in the Deed of Sale with Assumption of Mortgage,
petitioners paid private respondents indebtedness with the bank. However, private respondent reneged on
its obligation to deliver possession of the premises to petitioners upon the expiration of the one-year period
from April 13, 1992. Almost six months later since the execution of the instrument or on October 2, 1992,
petitioners caused the registration of the Deed of Sale with Assumption of Mortgage with the Register of
Deeds. Simultaneously, they obtained a new title, TCT No. 67990, consistent with the fact that they are the
new owners of the property.4 Sometime in July 1993, they paid the real estate taxes on the property for
which they were issued Tax Declarations Nos. C-061-02815 and C-061-02816.5cräläwvirtualibräry

On November 12, 1993, petitioners sent private respondent a demand letter asking it to vacate the
premises. Said letter, just like three other consecutive notices sent through the Quezon City post office, was
unclaimed. Hence, on April 11, 1994, petitioners filed before the Metropolitan Trial Court of Quezon City, a
complaint for unlawful detainer against private respondent. The complaint, docketed as Civil Case No. 8638
was raffled to Branch 41. Petitioners alleged that by virtue of the Deed of Sale with Assumption of Mortgage,
they acquired from private respondent the Gilmore property and its improvements, for which reason they
were issued TCT No. 67990. However, they added, in violation of the terms of that document, specifically
Sec. 3 (c) thereof, private respondent refused to surrender possession of the premises. Consequently, they
demanded that private respondent vacate the premises through notices sent by registered mail that were,
however, returned to them unclaimed.

In its answer to the complaint, private respondent raised the issue of ownership over the property. It
impugned petitioners right to eject, alleging that petitioners had no cause of action against it because it was
merely a mortgagee of the property. It argued that when the parties executed the Deed of Sale with
Assumption of Mortgage, its real intention was to forge an equitable mortgage and not a sale. It pointed out
three circumstances indicative of an equitable mortgage, namely: inadequacy of the purchase price,
continued possession by private respondent of the premises, and petitioners retention of a portion of the
purchase price.

During the preliminary conference on the case, the parties agreed to stipulate on the following: (a) the
existence and due execution of the Deed of Sale with Assumption of Mortgage, and (b) the issue of whether
or not the premises in litis are being unlawfully detained by private respondent.6cräläwvirtualibräry

On March 24, 1995, the MTC7 decided the case in favor of petitioners. It ruled that petitioners are the owners
of the Gilmore property on account of the following pieces of evidence: (a) TCT No. 67990; (b) petitioners
payment to the China Banking Corporation of P8,500,000.00, the amount of the mortgage entered into
between private respondent and said bank; (c) payment of real estate taxes for 1993, and (d) Tax
Declaration No. 02816 in petitioners names. The MTC further held that private respondents possession of
the premises was merely tolerated by petitioners and because it refused to vacate the premises despite
demand to do so, then its possession of the same premises had become illegal. Thus, the MTC decreed as
follows:

WHEREFORE, premises considered, judgment is hereby rendered ordering defendant and all persons
claiming rights under it to vacate the premises-in-litis located at No. 52 Gilmore St., New Manila, Quezon
City, and to peacefully surrender possession thereof to the plaintiffs; to pay plaintiffs the sum of P20,000.00
a month as compensation for the unjust occupation of the same from April 11, 1994 (the date of filing of
this case) until defendant fully vacates the said premises; to pay plaintiffs the amount of P20,000.00 as and
for attorneys fees plus costs of suit.

Counterclaim is dismissed for lack of merit.

SO ORDERED.8cräläwvirtualibräry

On April 25, 1995, private respondent interposed an appeal to the Regional Trial Court, Branch 219, of
Quezon City that docketed it as Civil Case No. Q-95-23697. Private respondent stressed in its appeal that it
was not unlawfully withholding possession of the premises from petitioners because the latters basis for
evicting it was the Deed of Sale with Assumption of Mortgage that did not reflect the true intention of the
parties to enter into an equitable mortgage. Clearly in pursuance of that allegation, private respondent filed
a motion questioning the jurisdiction of the RTC to entertain its appeal. On the other hand, petitioners filed
a motion for the immediate execution of the appealed decision. The RTC granted the motion on September
21, 1995 and the corresponding writ of execution was issued on September 25, 1995. The following day,
the sheriff served upon private respondent the writ of execution and a notice to vacate the premises within
five (5) days from receipt thereof.

Meanwhile, during the pendency of its appeal, private respondent filed an action for reformation of
instrument with the RTC. It was docketed as Civil Case No. Q-95-24927 and assigned to Branch 227.

In a resolution dated December 7, 1995, RTC Branch 219 asserted jurisdiction over the appeal. It ruled that
the issue of whether or not an action for reformation of a deed of sale and an unlawful detainer case can
proceed independently of each other has been resolved by this Court in Judith v. Abragan.9 In said case,
this Court held that the fact that defendants had previously filed a separate action for the reformation of a
deed of absolute sale into one of pacto de retro sale or equitable mortgage in the same Court of First
Instance is not a valid reason to frustrate the summary remedy of ejectment afforded by law to the plaintiff.

On December 12, 1995, private respondent filed in the Court of Appeals a petition for certiorari with prayer
for a temporary restraining order and writ of preliminary injunction against petitioners and RTC Branch 219.
It assailed the September 21, 1995 order granting the issuance of a writ of execution pending appeal, the
writ of execution and the notice to vacate served upon private respondent (CA-G.R. SP-39227).

On December 13, 1995, RTC Branch 21910 rendered the decision affirming in toto that of the Metropolitan
Trial Court. Stating that in ejectment proceedings, the only issue for resolution is who is entitled to physical
or material possession of the premises involved, RTC Branch 219 held that:

x x x the plaintiffs (petitioners herein) are vendees of the defendant (PBGDC) by virtue of a deed of sale
where the extent of its right to continue holding possession was stipulated. In the agreement, the
existence and due execution of which the defendant had admitted (Order, December 16, 1994, Rollo, p.
111), it was clearly stated that the defendant shall deliver the possession of the subject premises to the
plaintiffs at the expiration of one (1) year from the execution thereof, April 12, 1992. The defendant failed
to do so. From then on, it could be said that the defendant has been unlawfully withholding possession of
the premises from the plaintiffs.

In any case, this ruling on the matter of possession de facto is without prejudice to the action for reformation.
This is because `the judgment rendered in an action for forcible entry or detainer shall be effective with
respect to the possession only and in no wise bind the title or effect the ownership of the land or building
nor shall it be held conclusive of the facts therein found in a case between the same parties upon a different
cause of action not involving possession (Ang Ping v. Regional Trial Court, 154 SCRA 153; Section 7, Rule
70, Rules of Court).11cräläwvirtualibräry

On that same date, December 13, 1995, the Court of Appeals issued a temporary restraining order enjoining
RTC Branch 219 from enforcing the writ of execution and the notice to vacate the premises and on January
15, 1996, the same court granted private respondents application for a writ of preliminary injunction
enjoining the implementation of both the writ of execution pending appeal and the decision of RTC Branch
219.

Around six months later or on July 2, 1996, RTC Branch 227 12 issued an order declaring private respondent
non-suited for failure to appear at the pre-trial and, therefore, dismissing the action for reformation of
instrument in Civil Case No. Q-95-24927. Private respondent, not having sought reconsideration of said
order, the same court issued a resolution on August 15, 1996 directing the entry of judgment in the case. 13
The Clerk of Court accordingly issued the final entry of judgment thereon.14cräläwvirtualibräry

In the meantime, on July 24, 1996, the Court of Appeals rendered the herein questioned Decision.15 It set
aside the December 13, 1995 decision of RTC Branch 219 and declared as null and void for want of
jurisdiction, the March 24, 1995 decision of the Metropolitan Trial Court of Quezon City, Branch 41. It made
permanent the writ of preliminary injunction enjoining petitioners from implementing the decision of RTC
Branch 219, the writ of execution and the notice to vacate. In so holding, the Court of Appeals said:

It is quite evident that, upon the pleadings, the dispute between the parties extended beyond the ordinary
issues in ejectment cases. The resolution of the dispute hinged on the question of ownership and for that
reason was not cognizable by the MTC. (See: General Insurance and Surety Corporation v. Castelo, 13 SCRA
652 [1965]).

Respondent judge was not unaware of the pendency of the action for reformation. However, despite such
knowledge, he proceeded to discuss the merits of the appeal and rendered judgment in favor of respondents
on the basis of the deed of sale with assumption of mortgage which was precisely the subject of the action
for reformation pending before another branch of the court. Prudence dictated that respondent judge should
have refused to be drawn into a discussion as to the merits of the respective contentions of the parties and
deferred to the action of the court before whom the issue was directly raised for resolution.

On whether or not private respondent was in estoppel from questioning the jurisdiction of the MTC since it
voluntarily submitted thereto the question of the validity of its title to the property, the Court of Appeals
said:

This is not so. As earlier pointed out, petitioner (private respondent here) had, in its answer to the complaint
for unlawful detainer, promptly raised the issue of jurisdiction by alleging that what was entered into by the
parties was just an equitable mortgage and not a sale. Assuming the truth of this allegation, it is fairly
evident that respondents would not have had a cause of action for ejectment. In other words, Petitioner,
since the start of the case, presented a serious challenge to the MTCs jurisdiction but, unfortunately, the
court ignored such challenge and proceeded to decide the case simply on the basis of possession.

`The operation of the principle of estoppel on the question of jurisdiction seemingly depends upon whether
the lower court actually had jurisdiction or not, if it had no jurisdiction, but the case was tried and decided
upon the theory that it had jurisdiction, the parties are not barred, on appeal, from assailing such
jurisdiction, for the same must exist as a matter of law, and may not be conferred by consent of the parties
or by estoppel (5 C.J.S., 861-863). (La Naval Drug Corporation v. Court of Appeals, 236 SCRA 78 [1994]).

Contrary to respondents pretense, the filing by petitioner of an action for the reformation of contract may
not really be an afterthought. As we understand it, Petitioner, to support its allegation that the contract was
a mere equitable mortgage, cites the fact that the price was inadequate; it remained in possession of the
premises; it has retained a part of the purchase price; and, in any case, the real intention of the parties was
that the transaction shall secure the payment by petitioner of its loan, adverting to Article 1602 of the Civil
Code. Under Article 1604 of the same code, it is provided that the presence of only one circumstance defined
in Article 1602, such as those cited above, is sufficient for a contract of sale with right to repurchase to be
presumed an equitable mortgage. Without in any way preempting the decision of the court in the action for
reformation, it is our considered view that, under the factual milieu, the action was initiated for the proper
determination of the rights of the parties under the contract, and not just an afterthought.

No derogatory inference can arise from petitioners admission of the existence of the deed of sale with
assumption of mortgage. The admission does not necessarily dilute its claim that the same does not express
the true intent of the parties.

Verily, since the case at bench involves a controverted right, the parties are required to preserve the status
quo and await the decision of the proper court on the true nature of the contract. It is but just that the
person who has first acquired possession should remain in possession pending decision on said case, and
the parties cannot be permitted meanwhile to engage in petty warfare over possession of property which is
the subject of dispute. To permit this will be highly dangerous to individual security and disturbing to the
social order. (Manlapaz v. Court of Appeals, 191 SCRA 795 [1990]). 16cräläwvirtualibräry

Hence, the present petition for review on certiorari where petitioners raise the following assigned errors
allegedly committed by respondent Court of Appeals:

I.

THE DECISION OF THE RESPONDENT COURT OF APPEALS IS CONTRARY TO THE PROVISIONS OF SEC. 33
(2) OF THE JUDICIARY REORGANIZATION ACT OF 1980 CONFERRING EXCLUSIVE ORIGINAL JURISDICTION
ON THE METROPOLITAN TRIAL COURT IN EJECTMENT CASES AND VESTING IT WITH AUTHORITY, INDEED
MANDATORILY, TO RESOLVE ISSUES OF OWNERSHIP TO DETERMINE ISSUES OF POSSESSION.

II.

THE DECISION OF THE RESPONDENT COURT IS CONTRARY TO CURRENT AND PREVAILING DOCTRINE AS
ENUNCIATED IN WILMON AUTO SUPPLY CORP. VS. COURT OF APPEALS, 208 SCRA 108; SY VS. COURT OF
APPEALS, 200 SCRA 117; AND ASSET PRIVATIZATION TRUST VS. COURT OF APPEALS, 229 SCRA 627.

III.

THE FILING OF THE REFORMATION CASE CONFIRMS THE JURISDICTION OF THE METROPOLITAN TRIAL
COURT OVER THE EJECTMENT CASE; THE DISMISSAL OF THE REFORMATION CASE CONFIRMS THE FACT
THAT IT WAS FILED MERELY AS A PLOY TO DELAY DISPOSITION OF EJECTMENT PROCEEDINGS, AND BARES
NOT JUST THE ERROR BUT THE UTTER INEQUITY OF THE RESPONDENT COURTS DECISION ANNULLING
THE EJECTMENT DECREE AND SETTING ASIDE THE REGIONAL TRIAL COURT DECISION OF AFFIRMANCE.

Petitioners argue that the precedent laid down in Ching v. Malaya17 relied upon by the Court of Appeals, was
based on the old law, Republic Act No. 296 (Judiciary Act of 1948), as amended, which vested in the city
courts original jurisdiction over forcible entry and unlawful detainer proceedings and the corresponding
power to receive evidence upon the question of ownership for the only purpose of determining the character
and extent of possession.18 They claim that since the original complaint for unlawful detainer was filed on
April 13, 1992, then the applicable law should have been Section 33 (2) of the Judiciary Reorganization Act
of 1980 (Batas Pambansa Blg. 129). That law vests in the city courts exclusive original jurisdiction over
forcible entry and unlawful detainer cases and the corresponding power to receive evidence upon questions
of ownership and to resolve the issue of ownership to determine the issue of possession.19cräläwvirtualibräry

The history of the law vesting Municipal and Metropolitan Trial Courts with jurisdiction over ejectment cases
has invariably revolved upon the assumption that the question of ownership may be considered only if
necessary for the determination of the issue as to who of the parties shall have the right to possess the
property in litigation.20 Thus, under the Judiciary Act of 1948, as amended, Section 88 vested municipal and
city courts with authority to receive evidence upon the question of title therein, whatever may be the value
of the property, solely for the purpose of determining the character and extent of possession and damages
for detention. Section 3 of Republic Act No. 5967 that was enacted on June 21, 1969, provided that city
courts shall have concurrent jurisdiction with Courts of First Instance over ejection cases where the question
of ownership is brought in issue in the pleadings and that the issue of ownership shall be resolved in
conjunction with the issue of possession. Expounding on that provision of law, in Pelaez v. Reyes,21 this
Court said:

x x x We are of the considered opinion that the evident import of Section 3 above is to precisely grant to
the city courts concurrent original jurisdiction with the courts of first instance over the cases enumerated
therein, which include `ejection cases where the question of ownership is brought in issue in the
pleadings. To sustain petitioners contention about the meaning of the last phrase of paragraph (c) of said
section regarding the resolution of the issue of ownership `in conjunction with the issue of possession is to
disregard the very language of the main part of the section which denotes unmistakably a conferment
upon the city courts of concurrent jurisdiction with the courts of first instance over ejection cases in which
ownership is brought in issue in the pleadings. It is to Us quite clear that the fact that the issue of
ownership is to be resolved `in conjunction with the issue of possession simply means that both the issues
of possession and ownership are to be resolved by the city courts. And the jurisdiction is concurrent with
the Courts of First Instance precisely because usually questions of title are supposed to be resolved by
superior courts. In other words, this grant of special jurisdiction to city courts is to be distinguished from
the power ordinarily accorded to municipal courts to receive evidence of title only for the purpose of
determining the extent of the possession in dispute.

Upon the approval on August 14, 1981 of Batas Pambansa Blg. 129 or the Judiciary Reorganization Act of
1980, however, the power of inferior courts, including city courts, to resolve the issue of ownership in
forcible entry and unlawful detainer cases was modified. Resolution of the issue of ownership became subject
to the qualification that it shall be only for the purpose of determining the issue of possession. In effect,
therefore, the city courts lost the jurisdiction to determine the issue of ownership per se that was theretofore
concurrent with the then Courts of First Instance. Thus, Section 33 of B.P. Blg. 129 provides that
Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts shall exercise:

Exclusive original jurisdiction over cases of forcible entry and unlawful detainer: Provided, That when in such
cases, the defendant raises the question 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.

Accordingly, the Interim Rules and Guidelines in the implementation of Batas Pambansa Blg. 129 provides
as follows:

10. Jurisdiction in ejectment cases. Metropolitan trial courts, municipal trial courts, and municipal circuit
trial courts, without distinction, may try cases of forcible entry and detainer even if the question of ownership
is raised in the pleadings and the question of possession could not be resolved without deciding the issue of
ownership, but the question of ownership shall be resolved only to determine the issue of possession.

Explaining these provisions of law, in Sps. Refugia v. Court of Appeals,22 the Court said:

These issuances changed the former rule under Republic Act No. 296 which merely allowed inferior courts
to receive evidence upon the question of title solely for the purpose of determining the extent and character
of possession and damages for detention, which thereby resulted in previous rulings of this Court to the
effect that if it appears during the trial that the principal issue relates to the ownership of the property in
dispute and any question of possession which may be involved necessarily depends upon the result of the
inquiry into the title, then the jurisdiction of the municipal or city courts is lost and the action should be
dismissed. With the enactment of Batas Pambansa Blg. 129, the inferior courts now retain jurisdiction over
an ejectment case even if the question of possession cannot be resolved without passing upon the issue of
ownership, with the express qualification that such issue of ownership shall be resolved only for the purpose
of determining the issue of possession. In other words, the fact that the issues of ownership and possession
de facto are intricately interwoven will not cause the dismissal of the case for forcible entry and unlawful
detainer on jurisdictional grounds.

Another development in the law has emphasized the fact that inferior courts shall not lose jurisdiction over
ejectment cases solely because the issue of ownership is interwoven with the issue of possession. Under the
1983 Rules on Summary Procedure, as amended by a resolution of this Court that took effect on November
15, 1991, all forcible entry and unlawful detainer cases shall be tried pursuant to the Revised Rules on
Summary Procedure, regardless of whether or not the issue of ownership of the subject property is alleged
by a party.23 In other words, even if there is a need to resolve the issue of ownership, such fact will not
deprive the inferior courts of jurisdiction over ejectment cases 24 that shall be tried summarily.

When the jurisdiction of the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial
Courts was expanded, thereby amending Batas Pambansa Blg. 129, by virtue of Republic Act No. 7691 that
took effect on April 15, 1994, the jurisdiction of said courts over ejectment cases was retained. Thus, in
Hilario v. Court of Appeals this Court said:

x x x. As the law now stands, inferior courts retain jurisdiction over ejectment cases even if the question
of possession cannot be resolved without passing upon the issue of ownership; but this is subject to the
same caveat that the issue posed as to ownership could be resolved by the court for the sole purpose of
determining the issue of possession.

Thus, an adjudication made therein regarding the issue of ownership should be regarded as merely
provisional and, therefore, would not bar or prejudice an action between the same parties involving title to
the land. The foregoing doctrine is a necessary consequence of the nature of forcible entry and unlawful
detainer cases where the only issue to be settled is the physical or material possession over the real
property, that is, possession de facto and not possession de jure.

In other words, inferior courts are now conditionally vested with adjudicatory power over the issue of title
or ownership raised by the parties in an ejectment suit. 25 These courts shall resolve the question of
ownership raised as an incident in an ejectment case where a determination thereof is necessary for a proper
and complete adjudication of the issue of possession. Considering the difficulties that are usually
encountered by inferior courts as regards the extent of their power in determining the issue of ownership,
in Sps. Refugia v. Court of Appeals, the Court set out guidelines to be observed in the implementation of
the law which, as stated at the outset, has recently been restated in the 1997 Rules of Civil Procedure. The
guidelines pertinent to this case state:

1. The primal rule is that the principal issue must be that of possession, and that ownership is merely
ancillary thereto, in which case the issue of ownership may be resolved but only for the purpose of
determining the issue of possession. Thus, x x x, the legal provision under consideration applies only where
the inferior court believes and the preponderance of evidence shows that a resolution of the issue of
possession is dependent upon the resolution of the question of ownership.

2. It must sufficiently appear from the allegations in the complaint that what the plaintiff really and primarily
seeks is the restoration of possession. Consequently, where the allegations of the complaint as well as the
reliefs prayed for clearly establish a case for the recovery of ownership, and not merely one for the recovery
of possession de facto, or where the averments plead the claim of material possession as a mere elemental
attribute of such claim for ownership, or where the issue of ownership is the principal question to be
resolved, the action is not one for forcible entry but one for title to real property.

xxx,

5. Where the question of who has the prior possession hinges on the question of who the real owner of the
disputed portion is, the inferior court may resolve the issue of ownership and make a declaration as to who
among the contending parties is the real owner. In the same vein, 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. This is because, and it must be so understood, that any such pronouncement made affecting
ownership of the disputed portion is to be regarded merely as provisional, hence, does not bar nor prejudice
an action between the same parties involving title to the land. Moreover, Section 7, Rule 70 of the Rules of
Court expressly provides that the judgment rendered in an action for forcible entry or unlawful detainer
shall be effective with respect to the possession only and in no wise bind the title or affect the ownership of
the land or building.26 (Emphasis supplied.)

In the case at bar, petitioners clearly intended recovery of possession over the Gilmore property. They
alleged in their complaint for unlawful detainer that their claim for possession is buttressed by the execution
of the Deed of Sale with Assumption of Mortgage, a copy of which was attached as Annex A to the complaint
and by the issuance of TCT No. 67990 that evidenced the transfer of ownership over the property. 27 Because
metropolitan trial courts are authorized to look into the ownership of the property in controversy in
ejectment cases, it behooved MTC Branch 41 to examine the bases for petitioners claim of ownership that
entailed interpretation of the Deed of Sale with Assumption of Mortgage.

However, while it quoted paragraph (c) of the Deed of Sale with Assumption of Mortgage that embodies the
agreement of the parties that possession of the Gilmore property and its improvements shall remain with
the vendor that was obliged to transfer possession only after the expiration of one year, 28 MTC Branch 41
apparently did not examine the terms of the deed of sale. Instead, it erroneously held that the issue of
whether or not the document was in fact an equitable mortgage should not be properly raised in this case.
Had it examined the terms of the deed of sale, which, after all is considered part of the allegations of the
complaint having been annexed thereto, that court would have found that, even on its face, the document
was actually one of equitable mortgage and not of sale. The inferior court appears to have forgotten that all
documents attached to a complaint, the due execution and genuineness of which are not denied under oath
by the defendant, must be considered as part of the complaint without need of introducing evidence
thereon.29cräläwvirtualibräry

Article 1602 of the Civil Code provides that a contract shall be presumed to be an equitable mortgage by
the presence of any of the following:

(1) When the price of a sale with right to repurchase is unusually inadequate;

(2) When the vendor remains in possession as lessee or otherwise;

(3) When upon or after the expiration of the right to repurchase another instrument extending the period
of redemption or granting a new period is executed;

(4) When the purchaser retains for himself a part of the purchase price;

(5) When the vendor binds himself to pay the taxes on the thing sold;

(6) In any other case where it may be fairly inferred that the real intention of the parties is that the
transaction shall secure the payment of a debt or the performance of any other obligation.

Article 1604 of the same Code provides that the provisions of Article 1602 shall also apply to a contract
purporting to be an absolute sale. The presence of even one of the circumstances in Article 1602 is sufficient
basis to declare a contract as one of equitable mortgage.30 The explicit provision of Article 1602 that any of
those circumstances would suffice to construe a contract of sale to be one of equitable mortgage is in
consonance with the rule that the law favors the least transmission of property rights.

The Deed of Sale with Assumption of Mortgage covering the 2,000-square-meter lot located at No. 52
Gilmore Street, New Manila, Quezon City provides as follows:

3. That the total consideration for the sale of the above-described property by the VENDOR to the VENDEES
is FOURTEEN MILLION (P14,000,000.00) PESOS, in Philippine currency, payable as follows:

a) The VENDOR shall be paid by the VENDEE the sum of FIVE MILLION FOUR HUNDRED THOUSAND
(P5,400,000.00) PESOS upon the signing and execution of this Deed of Sale With Assumption of Mortgage
after computation of the mortgage obligation of the VENDOR with CHINA BANKING CORPORATION in the
amount of ______________________ which the VENDEES agree to assume as part of the consideration of
this sale. The VENDEES hereby assume the mortgage obligation of the VENDOR with the CHINA BANKING
CORPORATION in the total amount of ___________________.

b) The VENDOR hereby undertakes and agrees with the VENDEES that the first-named party shall warrant
and defend the title of said real property hereby conveyed in favor of the VENDEES, their heirs, successors
or assigns, against all just claims of all persons or entities; that the VENDOR also guarantees the right of
the VENDEES to the possession of the property subject of this contract without the need of judicial action;
and furthermore, the VENDOR binds itself to execute any additional documents to complete the title of the
VENDEES to the above-described property so that it may be registered in the name of the VENDEES in
accordance with the provisions of the Land Registration Act.

c) It is hereby expressly agreed and understood by and between the VENDOR and the VENDEES that the
house and other improvements found in the premises are included in this sale and that possession of said
premises shall be delivered to the VENDEES by the VENDOR at the expiration of one (1) year from the date
of the signing and execution of this Deed of Sale with Assumption of Mortgage.

d) It is furthermore expressly provided and agreed by and between the VENDOR and the VENDEES that the
capital gains tax shall be paid by the VENDOR while any and all fees and expenses incident to the registration
and transfer of the title to the aforementioned property shall be defrayed and borne by the VENDEES.

e) Attached to this Deed of Sale with Assumption of Mortgage as Annex `A thereof is the Certificate of
ROSANA FLORES, Corporate Secretary of PRICILIANO B. DEVELOPMENT CORPORATION, a corporation duly
organized and existing under Philippine Laws who certified that at a special meeting of the Board of Directors
of said corporation held on December 3, 1991 at which meeting a quorum was present, the following
resolution was adopted and passed, to wit:

`RESOLVED, AS IT IS HEREBY RESOLVED, that the company, PRICILIANO B. GONZALES DEVELOPMENT

`RESOLVED FURTHER, that Mr. ANTONIO B. GONZALES, is hereby authorized to sign, execute any and all
documents relative thereto.

That aforesaid resolution is in full force and effect.

(sgd.)
ROSANA FLORES
Corporate Secretary
(SGD.)

f) Full title and possession over the above-described property shall vest upon the VENDEES upon the full
compliance by them with all the terms and conditions herein set forth.31 (Underscoring supplied.)

That under the agreement the private respondent as vendor shall remain in possession of the property for
only one year, did not detract from the fact that possession of the property, an indicium of ownership, was
retained by private respondent as the alleged vendor. That period of time may be deemed as actually the
time allotted to private respondent for fulfilling its part of the agreement by paying its indebtedness to
petitioners. This may be gleaned from paragraph (f) that states that full title and possession of the property
shall vest upon the VENDEES upon the full compliance by them with all the terms and conditions herein set
forth.

Paragraph (f) of the contract also evidences the fact that the agreed purchase price of fourteen million pesos
(P14,000,000.00) was not handed over by petitioners to private respondent upon the execution of the
agreement. Only P5,400,000.00 was given by petitioners to private respondent, as the balance thereof was
to be dependent upon the private respondents satisfaction of its mortgage obligation to China Banking
Corporation. Notably, the MTC found that petitioners gave private respondent the amount of P8,500,000.00
that should be paid to the bank to cover the latters obligation, thereby leaving the amount of P100,000.00
(P5,400,000.00 + P8,500,000.00 = P13,900,000.00) of the purchase price still unpaid and in the hands of
petitioners, the alleged vendees.

Hence, two of the circumstances enumerated in Article 1602 are manifest in the Deed of Sale with
Assumption of Mortgage, namely: (a) the vendor would remain in possession of the property (no. 2), and
(b) the vendees retained a part of the purchase price (no. 4). On its face, therefore, the document subject
of controversy, is actually a contract of equitable mortgage.

The denomination of the contract as a deed of sale is not binding as to its nature. The decisive factor in
evaluating such an agreement is the intention of the parties, as shown, not necessarily by the terminology
used in the contract, but by their conduct, words, actions and deeds prior to, during and immediately after
executing the agreement.32 Private respondents possession over the property was not denied by petitioners
as in fact it was the basis for their complaint for unlawful detainer.

Neither does the issuance of a new transfer certificate of title in petitioners favor import conclusive evidence
of ownership or that the agreement between the parties was one of sale.33 In Macapinlac v. Gutierrez Repide,
this Court said:

x x x it must be borne in mind that the equitable doctrine x x x to the effect that any conveyance intended
as security for a debt will be held in effect to be a mortgage, whether so actually expressed in the
instrument or not, operates regardless of the form of the agreement chosen by the contracting parties as
the repository of their will. Equity looks through the form and considers the substance; and no kind of
engagement can be adopted which will enable the parties to escape from the equitable doctrine to which
reference is made. In other words, a conveyance of land, accompanied by registration in the name of the
transferee and the issuance of a new certificate, is no more secured from the operation of the equitable
doctrine than the most informal conveyance that could be devised. 34cräläwvirtualibräry

A closer look into the allegations of the complaint would therefore show that petitioners failed to make out
a case for unlawful detainer. By the allegations in the complaint, private respondent as a mortgagor had the
right to posses the property. A mortgage is a real right constituted to secure an obligation upon real property
or rights therein to satisfy with the proceeds of the sale thereof such obligation when the same becomes
due and has not been paid or fulfilled.35 The mortgagor generally retains possession of the mortgaged
property36 because by mortgaging a piece of property, a debtor merely subjects it to a lien but ownership
thereof is not parted with.37 In case of the debtors nonpayment of the debt secured by the mortgage, the
only right of the mortgagee is to foreclose the mortgage and have the encumbered property sold to satisfy
the outstanding indebtedness. The mortgagors default does not operate to vest in the mortgagee the
ownership of the encumbered property, for any such effect is against public policy.38 Even if the property is
sold at a foreclosure sale, only upon expiration of the redemption period, without the judgment debtor
having made use of his right of redemption, does ownership of the land sold become consolidated in the
purchaser.39cräläwvirtualibräry

Petitioners tenuous claim for possession of the Gilmore property was emasculated further by private
respondents answer to their complaint. The latter claimed ownership of the property, alleging that the
agreement was one of mortgage and not of sale. Private respondent alleged therein that in March 1993
(sic), it borrowed money from petitioner Felicidad Oronce alone to redeem the subject property from China
Banking Corporation. She agreed to lend it the amount on condition that the Gilmore property should be
mortgaged to her to guarantee payment of the loan. However, petitioner Flaminiano took the money from
petitioner Oronce and paid the mortgage obligation of private respondent to the China Banking Corporation
while claiming that 50% of the amount was hers. Petitioner Flaminianos husband, Atty. Eduardo Flaminiano,
forthwith prepared the Deed of Sale with Assumption of Mortgage and, without private respondents
knowledge, had it registered for which reason a new certificate of title was issued to petitioners. In claiming
that the agreement was one of mortgage, private respondent alleged in its answer, inter alia, that the actual
total value of the property was thirty million pesos (P30,000,000.00); that while it had possession of the
property, petitioners did not then attempt to repossess the same, notwithstanding the lapse of one year
from the execution of the document; that petitioners did not pay the real estate taxes even after the transfer
of title in their favor, and that petitioners did not deliver to private respondent the alleged purchase price.

Considering these claims of private respondent, MTC Branch 41 should have passed upon the issues raised
on the ownership of the Gilmore property for the purpose of determining who had the right to possess the
same. As it turned out, it simply accepted the allegations of petitioners without examining the supporting
documents. Had it closely analyzed the documents, it would have concluded that petitioners could not have
validly ousted private respondent from the property since the basis for its claim of ownership, the Deed of
Sale with Assumption of Mortgage, was actually a document evidencing an equitable mortgage. It would
have accordingly dismissed the complaint for lack of cause of action.

In fine, had the MTC exercised its bounden duty to study the complaint, it would have dismissed the same
for lack of cause of action upon a provisional ruling on the issue of ownership based on the allegations and
annexes of the complaint. Or, exercising caution in handling the case, considering petitioners bare
allegations of ownership, it should have required the filing of an answer to the complaint and, having been
alerted by the adverse claim of ownership over the same property, summarily looked into the issue of
ownership over the property. As this Court declared in Hilario v. Court of Appeals:

It is underscored, however, that the allegations in the complaint for ejectment should sufficiently make out
a case for forcible entry or unlawful detainer, as the case may be; otherwise, jurisdiction would not vest in
the inferior court. Jurisdiction over the subject matter is, after all, determined by the nature of the action
as alleged or pleaded in the complaint. Thus, even where the defendant alleges ownership or title to the
property in his or her answer, the inferior court will not be divested of its jurisdiction. A contrary rule would
pave the way for the defendant to trifle with the ejectment suit, which is summary in nature, as he could
easily defeat the same through the simple expedient of asserting ownership. 40cräläwvirtualibräry

As discussed above, even a perusal of the complaint without going over the claims of private respondent in
his answer would have sufficed to arrive at a provisional determination of the issue of ownership. The
importance of such provisional ruling on the issue of ownership is demanded by the fact that, in the event
that the claim of the plaintiff in an ejectment case is controverted as in this case, any ruling on the right of
possession would be shaky, meaningless and fraught with unsettling consequences on the property rights
of the parties. After all, the right of possession must stand on a firm claim of ownership. Had the MTC made
a provisional ruling on the issue of ownership, the parties would have availed of other remedies in law early
on to thresh out their conflicting claims.

Private respondents action for reformation of instrument was in fact a step in the right direction. However,
its failure to pursue that action41 did not imply that private respondent had no other remedy under the law
as regards the issue of ownership over the Gilmore property. There are other legal remedies that either
party could have availed of. Some of these remedies, such as an action for quieting of title, have been held
to coexist with actions for unlawful detainer.42 There is a policy against multiplicity of suits but under the
circumstances, only the institution of proper proceedings could settle the controversy between the parties
in a definitive manner.

Hence, although the Court of Appeals resolved the appeal under the misconception that the action for
reformation of instrument was still viable, it correctly held that the controversy between the parties was
beyond the ordinary issues in an ejectment case. Because of the opposing claims of the parties as to the
true agreement between them, the issue of ownership was in a sense a prejudicial question that needed
determination before the ejectment case should have been filed. To reiterate, a decision reached in the
ejectment case in favor of any of the parties would have nonetheless spawned litigation on the issue of
ownership. At any rate, proceedings would have been facilitated had the inferior courts made even a
provisional ruling on such issue.

The contentious circumstances surrounding the case were demonstrated by an occurrence during the
pendency of this petition that cries out for the resolution of the issue of ownership over the Gilmore property.

After the parties had filed their respective memoranda before this Court, private respondent filed an urgent
motion to cite petitioner Rosita L. Flaminiano and her husband, Atty. Eduardo B. Flaminiano, in contempt of
court.43 The motion was founded on an affidavit of Dr. Tadeo Gonzales who resided at the contested
property, deriving his right to do so from private respondent corporation that is owned by his family.
Gonzales alleged that on September 20, 1997, petitioner Flaminiano and her husband entered the property
through craftiness and intimidation. At around 5:30 p.m. on that day, two (2) men knocked at the gate.
When the houseboy, Luis R. Fernandez, opened the gate for pedestrians tentatively, the two men told him
that they would like to visit Gonzales mother who was ailing.
Once inside, the two men identified themselves as policemen and opened the gate for twenty (20) men, two
(2) trucks and an L-300 van to enter. When Gonzales went outside the house, he saw thirty (30) to forty
(40) men and two (2) trucks entering the driveway. The person he asked regarding the presence of those
people inside the property turned out to be the brother of petitioner Flaminiano. That person said, Kami ang
may-ari dito. Matagal na kaming nagtitiis, kayo ang dapat sa labas. After Gonzales had told him that the
property was still under litigation before this Court, the man said, Walang Supreme Court Supreme Court.
When Gonzales asked petitioner Flaminiano, who was inside the premises, to order the people to leave, she
said, Papapasukin namin ito dahil sa amin ito. Maglalagay ako ng tao diyan sa loob, sa harap, sa likod. Wala
ng pakiusap. When a power generator was brought inside the property and Gonzales pleaded that it be
taken out because the noise it would create would disturb his ailing mother, Emiliana Gonzales, petitioner
Flaminiano said, Walang awa-awa sa akin. Atty. Flaminiano butted in and, referring to Gonzales mother,
said, Ialis mo na, matanda na pala. When Gonzales prevented the switching on of some lights in the house
due to faulty wiring, Atty. Flaminiano suggested, Bakit hindi mo ipasunog ito? May insurance pa kayo 5
million, madali lang yan. Short circuit. Since the Flaminianos and their crew were not about to leave the
property, Gonzales called up his brother, Atty. Antonio Gonzales, and informed him of what happened.
However, instead of confining themselves in the driveway, the Flaminianos and their group entered the
terrace, bringing in food.

Gonzales was all the while concerned about his 81-year-old mother who had just been discharged from the
hospital. However, the Flaminianos stayed until the next day, September 22, 1997, using the kitchen,
furniture and other fixtures in the house. Gonzales took pictures of Flaminiano and his companions. When
Atty. Flaminiano arrived, he confronted Gonzales and told him, Hindi ako natatakot kahit kanino ka pa mag-
report, kahit pa sa Supreme Court, gusto ko nga mag-reklamo kayo para matapos ang kaso. Sa September
25, may shooting dito, gagawin ko ang gusto ko dito.44cräläwvirtualibräry

The affidavits of Renato C. Mola, driver of Atty. Antonio Gonzales, and that of Luis R. Fernandez, houseboy
of Dr. Tadeo Gonzales, as well as the xerox copy of the sworn statement dated September 21, 1997 of Pria
B. Gonzales before the Philippine National Police in Camp Crame where she filed a complaint against Atty.
Flaminiano for the illegal entry into their house, support the affidavit of Dr. Gonzales.

In its supplemental motion45 to cite petitioner Flaminiano and her husband, Atty. Flaminiano, in contempt
of court, private respondent alleged that the Flaminianos committed additional contumacious acts in
preventing another member of the family, Mrs. Cipriana Gonzales, from entering the property. In her
affidavit, Mrs. Gonzales said that the Flaminianos and their people used the whole house, except the
bedrooms, for their filming activities.46cräläwvirtualibräry

Thereafter, private respondent filed an urgent motion for the issuance of a temporary restraining order
and/or writ of preliminary injunction with this Court to enjoin petitioners, Atty. Flaminiano and their
representatives and agents from preventing private respondent, its agents and representatives from
entering the property and to cease and desist from occupying the property or from committing further acts
of dispossession of the property.47 On October 13, 1997, this Court issued the temporary restraining order
prayed for.48 In the motion it filed on October 21, 1997, 49 private respondent informed the Court that the
TRO could not be served upon petitioners immediately because, Atty. Flaminiano, their counsel of record,
had changed address without informing the Court. It was served upon said counsel only on October 15,
1997. However, instead of complying with this Courts order, petitioners continued occupying the property.
On October 16, 1997, after receiving a copy of the TRO, petitioners put up a huge billboard in front of the
property stating that it is the national headquarters of the Peoples Alliance for National Reconciliation and
Unity for Peace and Progress (PANRUPP).

In their comment on the motion for contempt, petitioners noticeably did not controvert the facts set forth
by private respondent in said motion. Instead, it reasserted its claim of ownership over the property as
evidenced by TCT No. 67990. They alleged that they had mortgaged the property to the Far East Bank and
Trust Company in the amount of thirty million pesos (P30,000,000.00) for which they are paying a monthly
interest of around P675,000.00 without enjoying the material possession of the subject property which has
been unlawfully and unjustly detained by private respondent for the last four (4) years as it was used as
the residence of the members of the family of its President ANTONIO B. GONZALES without the said private
respondent paying rentals thereon for the period from January 1995 up to October 5, 1997 when the said
property was voluntarily vacated by the members of the President (sic) of respondent corporation, ANTONIO
B. GONZALES, who has since then been a fugitive from justice having been convicted by final judgment of
the crime of estafa through falsification of public document and has succeeded in evading his sentence.

They averred that Tadeo Gonzales erroneously claimed that the rights of ownership and possession over the
property are still under litigation because the issue of ownership is no longer involved in this litigation when
the complaint for reformation of instrument with annulment of sale and title filed by private respondent was
dismissed with finality by reason of non-suit. Hence, they claimed that they now stand to be the
unquestionable registered and lawful owners of the property subject of controversy and that the July 24,
1996 Decision of the Court of Appeals has already lost its virtuality and legal efficacy with the occurrence of
a supervening event which is a superior cause superseding the basis of the judgment in CA-G.R. No. 39227
of respondent court.

They informed the Court that they are now leasing the property to PANRUPP from October 1, 1997 to
September 30, 1998. They alleged, however, that the property is in a deplorable state of decay and
deterioration that they saw the need to act swiftly and decisively to prevent further destruction of the
property where they invested millions of pesos of their life-time savings to acquire the same. Hence, they
sought the assistance of barangay officials in Barangay Mariana, New Manila who helped them effect the
peaceful entry into the property of the petitioners without the use of strategy, force and intimidation contrary
to what was alleged in the motion for contempt. They peacefully took over possession of the property on
September 20, 1997 but allowed the immediate members of the family of private respondents president to
stay on. The family finally agreed to vacate the premises on October 5, 1997 upon the offer of the petitioners
to shoulder partially the expenses for the hospitalization of the ailing mother at the St. Luke General Hospital
where she was brought by an ambulance accompanied by a doctor at petitioners expense.

Petitioners questioned the issuance by this Court of the TRO on October 13, 1997, asserting that when it
was issued, there were no more acts to restrain the illegal occupants of the subject property (as they) had
already peacefully vacated the premises on October 5, 1997 or more than a week after the said TRO was
issued by the Third Division of this Court. They prayed that the motion for contempt be denied for lack of
merit and that the TRO issued be lifted and set aside for the act or acts sought to be restrained have already
been done and have become a fait accompli before the issuance of the TEMPORARY RESTRAINING ORDER
on October 13, 1997.50cräläwvirtualibräry

As earlier discussed, petitioners claim that the dismissal of the action for reformation of instrument for non-
suit had written finis to the issue of ownership over the Gilmore property is totally unfounded in law.
Petitioners should be reminded that the instant petition stemmed from an unlawful detainer case, the issue
of which is merely possession of the property in question. The issue of ownership has not been definitively
resolved for the provisional determination of that issue that should have been done by the MTC at the
earliest possible time, would only be for the purpose of determining who has the superior right to possess
the property. Inasmuch as this Court has resolved that the rightful possessor should have been private
respondent and its representatives and agents, the TRO issued by this Court on October 13, 1997 should
not be lifted. That the TRO was issued days before private respondent left the property is immaterial. What
is in question here is lawful possession of the property, not possession on the basis of self-proclaimed
ownership of the property. For their part, petitioners should cease and desist from further exercising
possession of the same property which possession, in the first place, does not legally belong to them.

The conduct of petitioner Flaminiano in taking possession over the property as alleged by private respondent
through Tadeo Gonzales is deplorably high-handed. On an erroneous assumption that she had been legally
vested with ownership of the property, she took steps prior to the present proceedings by illegally taking
control and possession of the same property in litigation. Her act of entering the property in defiance of the
writ of preliminary injunction issued by the Court of Appeals constituted indirect contempt under Section 3,
Rule 71 of the Rules of Court that should be dealt with accordingly.

Be that as it may, what is disturbing to the Court is the conduct of her husband, Eduardo Flaminiano, a
lawyer51 whose actuations as an officer of the court should be beyond reproach. His contumacious acts of
entering the Gilmore property without the consent of its occupants and in contravention of the existing writ
or preliminary injunction issued by the Court of Appeals and making utterances showing disrespect for the
law and this Court, are certainly unbecoming of a member of the Philippine Bar. To be sure, he asserted in
his comment on the motion for contempt that petitioners peacefully took over the property. Nonetheless,
such peaceful take-over cannot justify defiance of the writ of preliminary injunction that he knew was still
in force. Notably, he did not comment on nor categorically deny that he committed the contumacious acts
alleged by private respondent. Through his acts, Atty. Flaminiano has flouted his duties as a member of the
legal profession. Under the Code of Professional Responsibility, he is prohibited from counseling or abetting
activities aimed at defiance of the law or at lessening confidence in the legal system. 52cräläwvirtualibräry

WHEREFORE, the instant petition for review on certiorari is hereby DENIED and the questioned Decision of
the Court of Appeals AFFIRMED without prejudice to the filing by either party of an action regarding the
ownership of the property involved. The temporary restraining order issued on October 13, 1997 is hereby
made permanent. Petitioners and their agents are directed to turn over possession of the property to private
respondent.

Petitioner Rosita Flaminiano is hereby held guilty of contempt of court for disobeying the writ of injunction
issued by the Court of Appeals and accordingly fined P20,000.00 therefor. Her counsel and husband, Atty.
Eduardo B. Flaminiano, is ordered to pay a fine of P25,000.00 for committing contumacious acts unbecoming
of a member of the Philippine Bar with a stern warning that a repetition of the same acts shall be dealt with
more severely. Let a copy of this Decision be attached to his record at the Office of the Bar Confidant.

This Decision is immediately executory. Costs against petitioners.

SO ORDERED.

Narvasa, C.J., (Chairman), Kapunan, and Purisima, JJ., concur.

Pardo, J., no part.