G.R. No. 115307 - Lao vs. Court of Appeals

The case involves petitioner Manuel Lao and respondents—the Court of Appeals and Better Homes Realty & Housing Corporation—in an ejectment suit concerning the premises at Unit I, No. 21 N. Domingo Street, Quezon City.
On June 24, 1992, Better Homes Realty & Housing Corporation (private respondent) filed a complaint for unlawful detainer with the Metropolitan Trial Court (MTC) alleging that it was the owner of the property evidenced by Transfer Certificate of Title No. 22184, and that Manuel Lao occupied the premises without paying rent, but merely under an arrangement of liberality with an undertaking to vacate upon demand.
Respondent’s complaint was supported by a letter demanding vacancy on February 5, 1992. Petitioner, in his answer, claimed he was the true owner of the property and contended that the so-called sale was in actual fact a loan secured by a mortgage.

The Metropolitan Trial Court rendered a decision on October 9, 1992, ordering petitioner to vacate the premises, impose daily rent of P300 starting January 31, 1992, and pay attorney’s fees and costs.
On appeal, the Regional Trial Court (RTC) reversed the MTC decision on March 30, 1993, dismissing the complaint for unlawful detainer on the basis that the underlying transaction was not an absolute sale but rather a loan secured by an equitable mortgage.
The Court of Appeals later reversed the RTC decision, reasoning that in an ejectment suit the main issue is possession de facto and that any question of ownership may only be considered for determining which party has the better right to possession.

Evidence showed that the transaction between Better Homes Realty & Housing Corporation and N. Domingo Realty & Development Corporation (represented by petitioner) was couched as a sale in the documents (such as the Deed of Absolute Sale and subsequent registration under TCT No. 22184) but was, in substance, an arrangement evidencing an equitable mortgage.
Key documents revealed that petitioner retained physical possession and beneficial ownership of the property since 1975, even after the alleged sale, and that the option to purchase was extended on multiple occasions with adjustments to the purchase price and additional loans provided.
Neither party objected to raising and discussing the issue of ownership during the trial proceedings, and both submitted evidence regarding title, thereby allowing the lower courts to address the ownership question even in an ejectment suit.

Whether the lower court (MTC and subsequently RTC) had jurisdiction to decide on the issue of ownership in an ejectment suit, given that such actions primarily concern possession de facto and not de jure.
Whether the parties’ non-objection to the inclusion of the ownership issue in their pleadings allowed the lower court to rule on that matter.

Whether Better Homes Realty & Housing Corporation acquired ownership of the subject property through an absolute sale or whether the true nature of the transaction was that of an equitable mortgage based on a loan secured by the property.
The evidential basis for characterizing the contract as a mortgage—specifically, the retention of possession by petitioner, the extensions of the option to purchase, and the conduct of the parties indicating an intent to secure a debt rather than transfer full ownership.

Whether petitioner Manuel Lao should be ejected from the premises given that, if the transaction is determined to be a loan secured by mortgage, the ownership (and beneficial interest) would still reside with the family corporation of which petitioner is a director, rather than conferring absolute title in favor of the private respondent.