G.R. No. 255397 - De Mesa vs. Pulutan

Case Summary (G.R. No. 255397)

Factual Background

Petitioner claimed ownership of a house and lot in Barangay Sta. Maria Magdalena, San Pablo City, originally covered by Transfer Certificate of Title (TCT) No. T-61656. She alleged that she purchased the property from Amelia D. Pulutan, the mother of respondents. According to petitioner, the notarized deed of sale between her and Amelia caused the cancellation of TCT No. T-61656 and the issuance of a new title, TCT No. T-75686, in her name in 2008.

Before the new title issuance, the parties entered into a lease contract covering the same property from October 2006 to September 2007, with a monthly rental of P2,000.00, payable on the first week of each calendar month. Amelia nevertheless continued to occupy the premises, now as lessee, together with Rudy and his family. Petitioner asserted that Amelia failed to pay rent when due, was asked to vacate, but refused and instead requested that petitioner allow her to repurchase the property until 30 December 2009. This repurchase arrangement was allegedly executed before the Sangguniang Barangay of Barangay Sta. Maria Magdalena.

Petitioner further explained that even before barangay conciliation, she discovered that the property was subject of a Notice of Levy issued by the RTC of San Pablo City, Branch 29 in Civil Case No. SP-6217, which led her to file a third-party complaint. A compromise agreement resulted in Amelia’s transfer of peace of mind to petitioner’s benefit: the latter paid the Spouses Dimaisip P270,000.00 to retain ownership. Because Amelia did not repurchase within the agreed period, petitioner demanded that Amelia vacate. Still, petitioner allegedly allowed Amelia to remain out of compassion because Amelia was then old and sickly.

Amelia died on 24 October 2016. Petitioner required Rudy to leave, but Rudy refused after Medy advised him. Petitioner then referred the matter again to the barangay, but the effort failed. When her written demand letter to vacate was also ignored, petitioner filed the unlawful detainer case.

Respondents’ Theory of the Case

Respondents opposed the complaint and advanced two related positions. First, they argued that the contract between petitioner and Amelia was not a sale but a real estate mortgage, anchored on Amelia’s continued possession. Second, respondents claimed that petitioner’s contract with Amelia was “akin to an equitable mortgage,” thus preserving Amelia’s ownership character and negating petitioner’s right to immediate possession through unlawful detainer.

MTCC Proceedings and Ruling

In the MTCC Decision dated 30 August 2018, the court identified the principal issue as “whether the contract between [petitioner] and [Amelia], [respondents’] mother, was one of sale or equitable mortgage.” The MTCC ruled that the contract was a sale, concluding that the parties’ intention was one of sale. It treated the execution of a lease contract between Amelia and petitioner as evidence of a change in ownership. On that basis, the MTCC held that petitioner had the better right to possession because she had been the registered owner since 2008.

The MTCC consequently ordered respondents to vacate the property covered by TCT No. 75686 and required payment of attorney’s fees and monthly compensation for use of the property.

RTC Proceedings and Modifications

Respondents appealed to the RTC. The RTC affirmed with modification by reducing the monthly rental rate from P5,000.00 to P2,000.00, and it echoed the MTCC’s reasoning on the nature of the parties’ contract. The RTC found “absolutely no evidence on record” showing that the parties intended to secure an existing debt by way of mortgage, or that Amelia was indebted to petitioner. It also rejected respondents’ equitable mortgage argument, treating it as an assertion of ownership inappropriate for resolution in an ejectment proceeding. The RTC likewise addressed execution pending appeal and implemented the writ of execution with the modified rental amount.

Court of Appeals Proceedings and Reversal

Respondents then filed a petition before the CA. The CA reversed. It annulled and set aside the RTC Decision and dismissed the complaint for lack of merit in its Decision dated 6 March 2020, and it denied reconsideration in the Resolution dated 20 January 2021.

The CA began by restating the rule that ownership may be provisionally resolved in ejectment cases when possession cannot be resolved without passing upon ownership. It held that the issue of possession was intertwined with ownership because respondents claimed they were the rightful owners of the property.

On the contract characterization, the CA determined that the purported deed of sale was in fact an equitable mortgage. It applied the rule that an equitable mortgage is shown when: first, the parties enter into a transaction denominated as a sale; and second, the intention is to secure an existing debt by way of mortgage. It further held that the circumstances in paragraphs 2 and 3 of Article 1602 of the Civil Code were present, emphasizing Amelia’s actual and continuous possession from the execution of the supposed sale in 2006 until her death in 2016 and beyond her failure to repurchase by 30 December 2009. It also discounted petitioner’s claim of tolerance of Amelia’s possession, finding petitioner had not presented sufficient evidence to substantiate that allegation.

Threshold Issue: Alleged Change of Theory Before the Supreme Court

In the petition before the Supreme Court, petitioner argued ownership based on a Deed of Redemption executed by the Spouses Dimaisip. Respondents contended that this was an impermissible shift of theory on appeal because it would require new evidence at that stage.

The Court ruled that respondents’ objection was valid. It explained that issues not alleged in the complaint nor raised before the trial court generally cannot be raised for the first time on appeal, as doing so contravenes fair play, justice, and due process. The Court agreed that petitioner’s ownership claim via a deed of redemption represented a different thesis from what she alleged in her complaint, which was ownership anchored on the deed of sale to Amelia. The Court also noted that certain documents attached to the petition—specifically certified true copies of TCT No. T-61656, a Notice of Levy, and a Certificate of Sale—were not mentioned in the complaint and were not identified and marked during preliminary conference. The Court found that no recognized exception justified the late introduction of this theory and the related documentary basis.

Consistently, the Court clarified that its eventual ruling would remain confined to determining who had the better right to possession de facto, as required in unlawful detainer proceedings.

Nature of Unlawful Detainer and Limits of Ownership Resolution

The Court reiterated that an action for unlawful detainer is meant solely to recover physical possession or possession de facto. It is a summary remedy designed to prevent an alleged illegal possessor from continuing possession unjustly while the longer controversy over possession de jure and ownership is resolved. The Rules of Court, however, recognize that when defendants raise defense of ownership and possession cannot be resolved without deciding ownership, the court may resolve ownership only to determine possession. The decision on ownership in such circumstances is provisional, does not bind title, and does not bar subsequent actions between the same parties on ownership.

These principles were grounded on Section 16, Rule 70 (resolving defense of ownership solely to determine possession) and Section 18, Rule 70 (judgment conclusive only on possession and not on title, and not barring actions respecting title).

Applying these rules, the Court observed that the CA had concluded that possession was intertwined with ownership because respondents claimed rightful ownership. The CA then dismissed the unlawful detainer case after determining that the deed of sale was an equitable mortgage.

Registered Owner Not Always Entitled to Ejectment Relief

Petitioner argued that the CA erred because it did not give preferential rights to the registered owner when determining the better right to physical possession. The Court rejected the argument.

It stated that while a Torrens title carries attributes of ownership, ejectment is not automatically decided in favor of the registered owner. The Court reiterated that ejectment depends on the jurisdictional facts constituting the specific ejectment case filed and on proof of the required averments. It cited controlling doctrine that an owner must show, among others, that initial possession was by contract or tolerance, that possession became illegal upon notice of termination, that the defendant continued possession and deprived the plaintiff of enjoyment, and that the complaint was filed within one year from the last demand to vacate.

The Court referenced jurisprudence where unlawful detainer complaints were dismissed despite claim of ownership because the plaintiffs failed to prove the required element that the defendant’s continued possession was by mere tolerance. In particular, it discussed decisions emphasizing that continuous possession in the concept of an owner is not possession by tolerance and defeats an ejectment claim.

Why the CA’s Equitable Mortgage Ruling Was Proper

In defending the CA ruling, the Court addressed the decisive question: whether the transaction was a sale or an equitable mortgage.

It agreed that even one of the Article 1602 circumstances can suffice to convert a purported sale into an equitable mortgage when the essential requisites and badges appear. The Court emphasized the presence of one particular badge: Amelia remained in possession as lessee after the execution of the supposed sale. The Court found that petitioner did not adequately explain why she allowed Amelia to retain possession indefinitely despite Amelia’s failure to pay rent and despite f

Case Syllabus (G.R. No. 255397)

Parties and Procedural Posture

Marlene D. De Mesa filed a Petition for Review on Certiorari questioning the Court of Appeals (CA) rulings that annulled the Regional Trial Court (RTC) decision and dismissed the unlawful detainer complaint.
The respondents were Rudy D. Pulutan and Medy P. Bundalian, who opposed the ejectment demand and challenged the nature of the parties’ transfer and possession.
The dispute originated from a Complaint for Unlawful Detainer and Damages filed by petitioner against respondents before the Municipal Trial in Cities (MTCC) of San Pablo City, Laguna.
The MTCC rendered judgment in favor of petitioner, ordering respondents to vacate and pay attorney’s fees and monthly compensation.
Respondents appealed to the RTC, which affirmed with modification by reducing the monthly rental award and implementing execution without supersedeas due to respondents’ failure to post the required bond.
Respondents then elevated the matter to the CA, which annulled the RTC judgment, set aside the MTCC decision, and dismissed the complaint for lack of merit.
The CA also denied petitioner’s motion for reconsideration, prompting petitioner’s recourse to the Supreme Court.
The Supreme Court ultimately denied the petition and affirmed the CA.

Key Factual Allegations

Petitioner claimed ownership of a house and lot in Barangay Sta. Maria Magdalena, San Pablo City, previously covered by TCT No. T-61656.
Petitioner alleged that she purchased the property from Amelia D. Pulutan, the mother of respondents, and that a notarized deed of sale resulted in the cancellation of TCT No. T-61656 and the issuance of TCT No. T-75686 in petitioner’s name.
The parties allegedly executed a contract of lease for the property from October 2006 to September 2007, at P2,000.00 per month, payable on the first week of each calendar month.
Petitioner stated that Amelia continued to occupy the property as lessee, together with Rudy and his family.
Petitioner averred that Amelia failed to pay rent, prompting requests to vacate, but Amelia instead sought to repurchase the property until 30 December 2009, an agreement allegedly made before the Sangguniang Barangay.
Petitioner asserted that she discovered, even before barangay conciliation, that the property was subject of a Notice of Levy issued by the RTC of San Pablo City, Branch 29 in Civil Case No. SP-6217, which led her to file a third-party complaint and execute a compromise requiring the payment of P270,000.00 to Spouses Ruby and Rolando Dimaisip to buy peace of mind and retain ownership.
Petitioner alleged that Amelia failed to repurchase within the stipulated period and that petitioner demanded Amelia vacate the premises.
Petitioner nevertheless allowed Amelia to remain due to compassion because Amelia was allegedly old and sickly at the time.
Petitioner required Rudy to vacate upon Amelia’s death on 24 October 2016, but Rudy refused on the advice of Medy.
Petitioner referred the dispute again to the Sangguniang Barangay, but no settlement resulted.
Petitioner stated that the unlawful detainer case was filed after respondents ignored her demand letter to vacate.
Respondents countered that the supposed sale was actually a real estate mortgage because Amelia remained in possession until death.
Respondents also argued that Amelia remained the owner because the arrangement was “akin to an equitable mortgage.”

Contract Nature Dispute

The MTCC identified the central question as whether the transaction between petitioner and Amelia was a sale or an equitable mortgage.
The MTCC characterized the transaction as a sale, emphasizing the parties’ supposed intention and the existence of a lease contract as proof of the change in ownership.
The MTCC relied on the principle that petitioner had the better right to possession as the registered owner since 2008.
The RTC affirmed, holding that there was “absolutely no evidence on record” showing that the parties intended to secure an existing debt by way of mortgage, or that Amelia was even indebted to petitioner.
The RTC also rejected respondents’ theory that the contract was an equitable mortgage, reasoning that such issue was an assertion of ownership that should not be resolved in an ejectment proceeding.
The CA reversed and dismissed the case by concluding that the deed of sale was in truth an equitable mortgage.
The CA reasoned that the requisites of an equitable mortgage existed, including (a) a contract denominated as sale and (b) an intention to secure existing debt by mortgage.
The CA found that the circumstances under Article 1602 of the Civil Code, particularly paragraphs (2) and (3), were present based on Amelia’s continuous possession from the execution of the supposed sale until her death and even after Amelia failed to repurchase by 30 December 2009.
The CA discounted petitioner’s claim that she merely tolerated Amelia’s possession, finding insufficient evidence to support that allegation.

Issues Raised Before the Supreme Court

The Supreme Court framed the pivotal question as whether the CA erred in reversing the lower courts’ ruling on respondents’ continuing possession and petitioner’s right to eject.
Petitioner argued that the CA should have afforded preferential rights to the registered owner for purposes of possession.
Petitioner also contended that the CA’s reliance on equitable mortgage principles amounted to an impermissible collateral attack on her TCT.
Petitioner asserted that sustaining the CA judgment would create multiplicity of suits because she would allegedly be forced to relitigate issues.
Respondents also raised a preliminary procedural challenge, arguing that petitioner changed her theory by introducing a claim of ownership based on a Deed of Redemption executed by the Spouses