MR. SERGIO VILLADAR, JR. & MRS. CARLOTA A. VILLADAR, Petitioners, vs. ELDON ZABALA and SAMUEL ZABALA, SR., Respondents.

Villadar versus Zabala

The Case

This is a petition for review brought by the spouses Sergio Villadar, Junior and Carlota Alimurung against Eldon Zabala and Samuel Zabala, Senior, arising from a complaint for unlawful detainer over portions of two subdivided lots in San Nicolas, Cebu City. The petitioners occupy a house that straddles both lots, and they trace their right to possess through Sergio's mother, Estelita Villadar, who bought one half of the original lot from Samuel, Senior on installment. The case matters because it draws the boundary between possession and ownership in ejectment suits, and because it shows how a seller's failure to rescind an installment sale, and a buyer's failure to exhaust barangay conciliation, can defeat an otherwise plausible detainer complaint.

Procedural History

Eldon Zabala and Samuel Zabala, Senior filed a complaint for unlawful detainer before the Municipal Trial Court in Cities, Branch 8, Cebu City. The trial court dismissed the complaint, holding that the petitioners could not be deprived of possession because one half of the lot had already been sold to Estelita Villadar, the source of the petitioners' right to possess, and it awarded litigation costs against the respondents. The respondents appealed to the Regional Trial Court, Branch 58, Cebu City, which affirmed the dismissal. The respondents then went up to the Court of Appeals by petition for review, and that court reversed the trial court and the Regional Trial Court, ordering the petitioners to surrender possession of the portions of the two lots on which their house stood. The Court of Appeals denied the petitioners' motion for reconsideration. The petitioners then elevated the matter to the Supreme Court by petition for review.

Facts

Samuel Zabala, Senior owned a lot of 438 square meters in San Nicolas, Cebu City, covered by a transfer certificate of title. On January 13, 1995, he and his wife Maria Luz sold one half of that lot to his mother-in-law, Estelita Villadar, for 75,000 pesos on installment basis. No contract was executed and no date was fixed for full payment; the only writing was a note of partial payment of 6,500 pesos. On February 28, 1997, Samuel, Senior sold the other half to Eldon Zabala. The lot was then subdivided: one half was registered in Eldon's name and the other in Samuel, Senior's name.

On April 20, 1997, Estelita made an additional payment of 22,500 pesos, leaving a balance of 36,500 pesos. Later, after a confrontation at the barangay hall, the spouses Samuel, Senior and Maria Luz decided to cancel the sale. Samuel, Senior and his son Samuel, Junior filed an ejectment complaint before the barangay against Sergio Villadar, Junior, who occupied one of the houses on the property, and the barangay office issued a certificate to file action after Sergio failed to appear for conciliation.

On October 27, 1998, Eldon and Samuel, Senior filed the unlawful detainer complaint against Sergio and Carlota. They alleged that they had allowed the petitioners to stay in a vacant store out of pity, on condition that they leave when the premises were needed, and that the petitioners refused to vacate despite demand. The petitioners answered that Estelita had bought one half of the lot, that they derived their right from her, that she had tried to tender the balance but Samuel, Senior unjustifiably refused it, and that they were builders in good faith entitled to retain the premises until reimbursed 80,000 pesos, the value of their house.

Issues

• Whether or not the Court of Appeals erred in reversing the ruling that the respondents could not validly eject the petitioners.
• Whether or not Samuel, Senior reserved title to the land sold to Estelita, making the transaction a contract to sell rather than a contract of sale.
• Whether or not the sale to Estelita was validly rescinded or cancelled, so as to make the petitioners' possession unlawful.
• Whether or not Eldon's detainer suit over his portion was premature for failure to comply with the barangay conciliation requirement.
• Whether or not the petitioners were builders in good faith entitled to reimbursement or retention.

Applicable Provisions

Section 412 of the Local Government Code provides:

SECTION 412. Conciliation. – (a) Pre-condition to filing of complaint in court. – No complaint, petition, action, or proceeding involving any matter within the authority of the lupon shall be filed or instituted directly in court or any other government office for adjudication, unless there has been a confrontation between the parties before the lupon chairman or the pangkat, and that no conciliation or settlement has been reached as certified by the lupon secretary or pangkat secretary as attested to by the lupon or pangkat chairman or unless the settlement has been repudiated by the parties thereto.

This provision governs whether Eldon's complaint could be filed in court at all without a prior barangay confrontation.

Section 3 of the Realty Installment Buyer Protection Act provides:

If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty per cent of the total payments made and, after five years of installments, an additional five per cent every year but not to exceed ninety per cent of the total payments made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer.

This provision bears on whether Samuel, Senior could treat the sale to Estelita as cancelled for nonpayment.

Ruling

On the first issue, the Court granted the petition and set aside the Court of Appeals. It restated the settled doctrine that where the issue of possession in an unlawful detainer suit is closely intertwined with the issue of ownership, the municipal trial court may provisionally resolve ownership for the sole purpose of determining possession, but that judgment is not conclusive in any action involving title.

On the second issue, the Court held that the appellate court's finding that Samuel, Senior reserved title had no factual basis. The respondents never alleged such a reservation in their complaint, position paper, joint affidavit, or petition for review. The oral contract was therefore a contract of sale, not a contract to sell, because it is only in a contract to sell that ownership is reserved in the seller until full payment.

On the third issue, the Court found that Samuel, Senior neither notified Estelita by notarial act that he was rescinding nor sued in court to rescind, and did not comply with the requirements of the Realty Installment Buyer Protection Act. Absent a valid rescission or cancellation, Estelita's claim of ownership remained valid, and she was within her rights when she allowed the petitioners to occupy part of the land she bought. As to Samuel, Senior's own half, he had no cause to eject the petitioners, since the unlawfulness of their possession depended on the rescission of the sale.

On the fourth issue, the Court held that Eldon's detainer suit was premature for failure to exhaust administrative remedies. Only Samuel, Senior and Samuel, Junior had complied with the barangay conciliation requirement, and the Court held that the municipal trial court should have dismissed Eldon's complaint.

On the fifth issue, the Court rejected the claim of builders in good faith, since Sergio knew that the lot was not yet fully paid and that no separate title had been issued to Estelita.

Doctrine

First, in unlawful detainer, where possession cannot be resolved without deciding ownership, the court may provisionally rule on ownership, but only to determine possession, and the judgment does not bind title.

Second, a contract of sale transfers ownership upon perfection, while a contract to sell reserves ownership in the seller until full payment; absent proof of such a reservation, an oral installment sale is a contract of sale.

Third, a seller cannot treat an installment sale as cancelled without a notarial notice of cancellation or rescission and compliance with the Realty Installment Buyer Protection Act; until then, the buyer's right to possess subsists.

Fourth, compliance with the barangay conciliation requirement under Section 412 of the Local Government Code is a precondition to filing the complaint in court, and noncompliance renders the complaint dismissible.

Disposition

The Supreme Court granted the petition, set aside the Court of Appeals decision and resolution, dismissed the respondents' unlawful detainer complaint without prejudice to any appropriate suit respecting title, and taxed costs against the respondents.

Remember This

Memorize this line: absent a valid rescission, an installment buyer's right to possess subsists, and the seller cannot eject those who derive their right from her. Examiners use this case to test the contract of sale versus contract to sell distinction, the provisional resolution of ownership in ejectment, and the barangay conciliation precondition.