In Union Bank of the Philippines v. Maunlad Homes, Inc., the Supreme Court addressed the jurisdiction of Metropolitan Trial Courts (MeTC) in ejectment cases involving contracts to sell. The Court clarified that MeTCs have the authority to interpret contracts to determine possession, and upheld the validity of venue stipulations in contracts, even for ejectment actions. This decision reinforces the principle that contractual agreements on venue are binding and that MeTCs can resolve issues of possession by interpreting relevant contracts.

Mall Possession at Stake: Can Makati Courts Decide Bulacan Property Disputes?

The case revolves around a contract to sell between Union Bank and Maunlad Homes, Inc., concerning a commercial complex in Malolos, Bulacan, known as the Maunlad Shopping Mall. Maunlad Homes failed to pay the monthly amortization, leading Union Bank to rescind the contract. Subsequently, Union Bank filed an ejectment suit in the Metropolitan Trial Court (MeTC) of Makati City, based on a venue stipulation in the contract. The lower courts dismissed the case, arguing that the MeTC lacked jurisdiction and the venue was improper. The Supreme Court, however, reversed these decisions, holding that the MeTC had jurisdiction and the venue stipulation was valid.

The central legal question was whether the MeTC of Makati City had jurisdiction over the ejectment case, given that the property was located in Bulacan and the action involved interpreting a contract to sell. The Supreme Court began its analysis by emphasizing that jurisdiction is determined by the allegations in the complaint. An unlawful detainer action requires the plaintiff to prove that the defendant initially had lawful possession, which became unlawful upon termination of the right to possess. In this case, Union Bank alleged that Maunlad Homes possessed the property under a contract to sell, which was rescinded due to non-payment. The Court noted that these allegations sufficiently established a cause of action for unlawful detainer, vesting the MeTC with jurisdiction.

Maunlad Homes argued that its failure to make payments did not terminate its right to possess the property because it claimed ownership when Union Bank failed to reserve ownership of the property under the contract. However, the Supreme Court clarified that a defendant cannot divest the MeTC of jurisdiction by merely claiming ownership. Section 16, Rule 70 of the Rules of Court allows the MeTC to preliminarily resolve the issue of ownership to determine possession, without conclusively binding the title or affecting ownership. The Supreme Court cited Consignado v. Court of Appeals, G.R. No. 87148, March 18, 1992 which held that:

[W]hen 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.

Building on this principle, the Court stated that the MeTC’s authority to resolve the issue of ownership necessarily entails interpreting and enforcing the contract between the parties. To deny the MeTC jurisdiction merely because the issue of possession requires contract interpretation would negate unlawful detainer as a remedy. The Court cited Sps. Refugia v. CA, which provides that:

[W]here 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 Court emphasized that the MeTC’s ruling on the parties’ rights based on contract interpretation is provisional and binding only concerning possession. The Supreme Court then addressed the nature of the contract between Union Bank and Maunlad Homes, determining it to be a contract to sell, not a contract of sale. The critical distinction lies in the condition of full payment. The Court stated that:

Jurisprudence has established 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.

In a contract to sell, full payment of the purchase price is a positive suspensive condition, and non-fulfillment prevents the seller from conveying title. Thus, Maunlad Homes’ failure to pay rendered the contract ineffective, depriving it of the right to possess the property. Furthermore, the Supreme Court addressed the issue of venue. While Section 1, Rule 4 of the Rules of Court generally requires ejectment actions to be filed where the property is located, Section 4 provides an exception when parties have validly agreed in writing on an exclusive venue. The contract between Union Bank and Maunlad Homes stipulated that the venue for all suits connected with the contract would be in Makati City. The Court cited Villanueva v. Judge Mosqueda, etc., et al., upholding the validity of such stipulations.

Here is a comparison of arguments regarding venue:

Argument for Malolos, Bulacan Venue	Argument for Makati City Venue
Section 1, Rule 4 of the Rules of Court mandates that ejectment actions be filed in the municipality or city where the property is located.	Section 4, Rule 4 allows parties to agree in writing on an exclusive venue before filing an action.
The property in question, Maunlad Shopping Mall, is located in Malolos, Bulacan.	The contract between Union Bank and Maunlad Homes stipulated that the venue for all suits connected with the contract would be in Makati City.
	The ejectment action is connected with the contract, therefore the Makati City venue is valid.

Because the unlawful detainer action was connected with the contract, the Supreme Court held that Union Bank rightfully filed the complaint in the MeTC of Makati City. The Supreme Court ultimately granted the petition, setting aside the CA’s decision. The Court ordered Maunlad Homes to vacate the property and pay rentals-in-arrears. The case was remanded to the MeTC of Makati City to determine the amount of rentals due, with legal interest imposed.

FAQs

What was the key issue in this case?	The key issue was whether the Metropolitan Trial Court (MeTC) of Makati City had jurisdiction over an ejectment case involving a property in Bulacan, based on a contractual venue stipulation.
What is unlawful detainer?	Unlawful detainer is an action to recover possession of real property from someone who unlawfully withholds possession after the expiration or termination of their right to possess. The action must be filed within one year of the unlawful withholding of possession.
Can a MeTC interpret contracts in an unlawful detainer case?	Yes, the Supreme Court held that the MeTC has the authority to interpret contracts to determine the issue of possession in an unlawful detainer case. This interpretation is provisional and binding only with respect to possession.
What is the difference between a contract to sell and a contract of sale?	In a contract to sell, ownership is not transferred until full payment of the purchase price, which is a positive suspensive condition. In a contract of sale, ownership is transferred upon delivery of the property.
What happens if a buyer fails to pay in a contract to sell?	If the buyer fails to pay in a contract to sell, the contract becomes ineffective, and the seller is not obligated to transfer ownership. The buyer loses the right to possess the property.
Can parties agree on a venue for lawsuits different from what the Rules of Court specify?	Yes, Section 4, Rule 4 of the Rules of Court allows parties to agree in writing on an exclusive venue for lawsuits, even if it differs from the general rules on venue. Such agreements are generally upheld.
Where should an ejectment action be filed?	Generally, an ejectment action should be filed in the municipal trial court of the municipality or city where the real property is located. However, this rule does not apply if the parties have agreed on a different venue in writing.
What was the outcome of this case?	The Supreme Court ruled in favor of Union Bank, ordering Maunlad Homes to vacate the property and pay rentals-in-arrears. The Court upheld the jurisdiction of the MeTC of Makati City based on the contractual venue stipulation.

This case underscores the importance of clear and enforceable venue stipulations in contracts, particularly in real estate transactions. It clarifies the extent of a Metropolitan Trial Court’s jurisdiction in ejectment cases, especially when the right to possess hinges on contract interpretation. The decision provides valuable guidance for parties entering into contracts to sell and reinforces the principle of upholding contractual agreements.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Union Bank of the Philippines vs. Maunlad Homes, Inc., G.R. No. 190071, August 15, 2012