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SECOND DIVISION
OPTIMUM DEVELOPMENT
BANK,
Petitioner,
- versus -
SPOUSES BENIGNO V.
JOVELLANOS and
LOURDES R. JOVELLANOS,
Respondents.
G.R. No. 189145
Present:
CARPIO, J., Chairperson,
BRION,
DEL CASTILLO,
PEREZ, and
PERLAS-BERNABE, JJ.
Promulgated:
DEC 0 4 2013

DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari
1
are the Decision
2
dated May 29, 2009 and Resolution
3
dated August 10, 2009 of the Court of
Appeals (CA) in CA-G.R. SP No. 104487 which reversed the Decision
4
dated December 27, 2007 of the Regional Trial Court of Caloocan City,
Branch 128 (RTC) in Civil Case No. C-21867 that, in tum, affirmed the
Decision
5
dated June 8, 2007 of the Metropolitan Trial Court, Branch 53 of
that same city (MeTC) in Civil Case No. 06-28830 ordering respondents-
spouses Benigno and Lourdes Jovellanos (Sps. Jovellanos) to, inter alia,
vacate the premises of the property subject of this case.
Rollo, pp. 24-40.
2
Id. at 171-177. Penned by Associate Justice Juan Q. Enriquez, Jr., with Associate Justices Celia C.
Librea-Leagogo and Antonio L. Villamor, concurring.
Id. at 205-206.
4
Id. at 107-111. Penned by Presiding Judge Eleanor R. Kwong.
Id. at 73-74. Penned by Judge Mariam G. Bien.
Decision 2 G.R. No. 189145
The Facts

On April 26, 2005, Sps. Jovellanos entered into a Contract to Sell
6

with Palmera Homes, Inc. (Palmera Homes) for the purchase of a residential
house and lot situated in Block 3, Lot 14, Villa Alegria Subdivision,
Caloocan City (subject property) for a total consideration of P1,015,000.00.
Pursuant to the contract, Sps. Jovellanos took possession of the subject
property upon a down payment of P91,500.00, undertaking to pay the
remaining balance of the contract price in equal monthly installments of
P13,107.00 for a period of 10 years starting June 12, 2005.
7


On August 22, 2006, Palmera Homes assigned all its rights, title and
interest in the Contract to Sell in favor of petitioner Optimum Development
Bank (Optimum) through a Deed of Assignment of even date.
8


On April 10, 2006, Optimum issued a Notice of Delinquency and
Cancellation of Contract to Sell
9
for Sps. Jovellanoss failure to pay their
monthly installments despite several written and verbal notices.
10
In a final
Demand Letter dated May 25, 2006,
11
Optimum required Sps. Jovellanos to
vacate and deliver possession of the subject property within seven (7) days
which, however, remained unheeded. Hence, Optimum filed, on November
3, 2006, a complaint for unlawful detainer
12
before the MeTC, docketed as
Civil Case No. 06-28830.

Despite having been served with summons, together with a copy of
the complaint,
13
Sps. Jovellanos failed to file their answer within the
prescribed reglementary period, thus prompting Optimum to move for the
rendition of judgment.
14
Thereafter, Sps. Jovellanos filed their opposition
with motion to admit answer, questioning the jurisdiction of the court,
among others. Further, they filed a Motion to Reopen and Set the Case for
Preliminary Conference, which the MeTC denied.

The MeTC Ruling

In a Decision
15
dated June 8, 2007, the MeTC ordered Sps. Jovellanos
to vacate the subject property and pay Optimum reasonable compensation in
the amount of P5,000.00 for its use and occupation until possession has been
surrendered. It held that Sps. Jovellanoss possession of the said property

6
Id. at 45-50.
7
Id. at 45, 108, and 172.
8
Id. at 26 and 51-54.
9
Id. at 55.
10
Id. at 58.
11
Id. at 56.
12
Id. at 57-60. Dated October 11, 2006.
13
Id. at 62.
14
Id. at 63-65.
15
Id. at 73-74.
Decision 3 G.R. No. 189145
was by virtue of a Contract to Sell which had already been cancelled for
non-payment of the stipulated monthly installment payments. As such, their
rights of possession over the subject property necessarily terminated or
expired and hence, their continued possession thereof constitute[d] unlawful
detainer.
16


Dissatisfied, Sps. Jovellanos appealed to the RTC, claiming that
Optimum counsel made them believe that a compromise agreement was
being prepared, thus their decision not to engage the services of counsel and
their concomitant failure to file an answer.
17
They also assailed the
jurisdiction of the MeTC, claiming that the case did not merely involve the
issue of physical possession but rather, questions arising from their rights
under a contract to sell which is a matter that is incapable of pecuniary
estimation and, therefore, within the jurisdiction of the RTC.
18


The RTC Ruling

In a Decision
19
dated December 27, 2007, the RTC affirmed the
MeTCs judgment, holding that the latter did not err in refusing to admit
Sps. Jovellanoss belatedly filed answer considering the mandatory period
for its filing. It also affirmed the MeTCs finding that the action does not
involve the rights of the respective parties under the contract but merely the
recovery of possession by Optimum of the subject property after the
spouses default.
20


Aggrieved, Sps. Jovellanos moved for reconsideration which was,
however, denied in a Resolution
21
dated June 27, 2008. Hence, the petition
before the CA reiterating that the RTC erred in affirming the decision of the
MeTC with respect to: (a) the non-admission of their answer to the
complaint; and (b) the jurisdiction of the MeTC over the complaint for
unlawful detainer.
22


The CA Ruling

In an Amended Decision
23
dated May 29, 2009, the CA reversed and
set aside the RTCs decision, ruling to dismiss the complaint for lack of
jurisdiction. It found that the controversy does not only involve the issue of
possession but also the validity of the cancellation of the Contract to Sell and
the determination of the rights of the parties thereunder as well as the

16
Id. at 74.
17
Id. at 80-81.
18
Id. at 85-86.
19
Id. at 107-111.
20
Id. at 111.
21
Id. at 140-141.
22
Id. at 142-157. See Memorandum for the Petitioners dated December 21, 2008.
23
Id. at 171-177.
Decision 4 G.R. No. 189145
governing law, among others, Republic Act No. (RA) 6552.
24
Accordingly,
it concluded that the subject matter is one which is incapable of pecuniary
estimation and thus, within the jurisdiction of the RTC.
25


Undaunted, Optimum moved for reconsideration which was denied in
a Resolution
26
dated August 10, 2009. Hence, the instant petition, submitting
that the case is one for unlawful detainer, which falls within the exclusive
original jurisdiction of the municipal trial courts, and not a case incapable of
pecuniary estimation cognizable solely by the regional trial courts.

The Courts Ruling

The petition is meritorious.

What is determinative of the nature of the action and the court with
jurisdiction over it are the allegations in the complaint and the character of
the relief sought, not the defenses set up in an answer.
27
A complaint
sufficiently alleges a cause of action for unlawful detainer if it recites that:
(a) initially, possession of the property by the defendant was by contract
with or by tolerance of the plaintiff; (b) eventually, such possession became
illegal upon notice by plaintiff to defendant of the termination of the latter's
right of possession; (c) thereafter, defendant remained in possession of the
property and deprived plaintiff of the enjoyment thereof; and (d) within one
year from the last demand on defendant to vacate the property, plaintiff
instituted the complaint for ejectment.
28
Corollarily, the only issue to be
resolved in an unlawful detainer case is physical or material possession of
the property involved, independent of any claim of ownership by any of the
parties involved.
29


In its complaint, Optimum alleged that it was by virtue of the April
26, 2005 Contract to Sell that Sps. Jovellanos were allowed to take
possession of the subject property. However, since the latter failed to pay the
stipulated monthly installments, notwithstanding several written and verbal
notices made upon them, it cancelled the said contract as per the Notice of
Delinquency and Cancellation dated April 10, 2006. When Sps. Jovellanos
refused to vacate the subject property despite repeated demands, Optimum
instituted the present action for unlawful detainer on November 3, 2006, or
within one year from the final demand made on May 25, 2006.


24
Id. at 175. RA 6552 is entitled AN ACT TO PROVIDE PROTECTION TO BUYER OF REAL ESTATE ON
INSTALLMENT PAYMENTS.
25
Id. at 176.
26
Id. at 205-206.
27
Fernando v. Spouses Lim, 585 Phil. 141, 155 (2008).
28
Id. at 155-156.
29
Manila Electric Company v. Heirs of Spouses Dionisio Deloy and Praxedes Martonito, G.R. No.
192893, June 5, 2013.
Decision 5 G.R. No. 189145
While the RTC upheld the MeTCs ruling in favor of Optimum, the
CA, on the other hand, declared that the MeTC had no jurisdiction over the
complaint for unlawful detainer, reasoning that the case involves a matter
which is incapable of pecuniary estimation i.e., the validity of the
cancellation of the Contract to Sell and the determination of the rights of the
parties under the contract and law and hence, within the jurisdiction of the
RTC.

The Court disagrees.

Metropolitan Trial Courts are conditionally vested with authority to
resolve the question of ownership raised as an incident in an ejectment case
where the determination is essential to a complete adjudication of the
issue of possession.
30
Concomitant to the ejectment courts authority to look
into the claim of ownership for purposes of resolving the issue of
possession is its authority to interpret the contract or agreement upon which
the claim is premised. Thus, in the case of Oronce v. CA,
31
wherein the
litigants opposing claims for possession was hinged on whether their
written agreement reflected the intention to enter into a sale or merely an
equitable mortgage, the Court affirmed the propriety of the ejectment courts
examination of the terms of the agreement in question by holding that,
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.
32
Also, in Union Bank of the Philippines v. Maunlad Homes,
Inc.
33
(Union Bank), citing Sps. Refugia v. CA,
34
the Court declared that
MeTCs have authority to interpret contracts in unlawful detainer cases,
viz.:
35


The authority granted to the MeTC to preliminarily resolve
the issue of ownership to determine the issue of possession ultimately
allows it to interpret and enforce the contract or agreement between
the plaintiff and the defendant. To deny the MeTC jurisdiction over a
complaint merely because the issue of possession requires the
interpretation of a contract will effectively rule out unlawful detainer as a
remedy. As stated, in an action for unlawful detainer, the defendants right

30
Section 33 of Batas Pambansa Blg. 129, as amended by RA 7691, provides:
Sec. 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and
Municipal Circuit Trial Courts in Civil Cases. Metropolitan Trial Courts,
Municipal Trial Courts, and Municipal Circuit Trial Courts shall exercise:
x x x x
(2) Exclusive original jurisdiction over cases of forcible entry and unlawful detainer:
Provided, That when, in such cases, the defendant raises the questions 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; x x x
x x x x
31
358 Phil. 616 (1998).
32
Id. at 636.
33
G.R. No. 190071, August 15, 2012, 678 SCRA 539.
34
327 Phil. 982, 1006 (1996).
35
Union Bank of the Philippines v. Maunlad Homes, Inc., supra note 33, at 547-548.
Decision 6 G.R. No. 189145
to possess the property may be by virtue of a contract, express or implied;
corollarily, the termination of the defendants right to possess would be
governed by the terms of the same contract. Interpretation of the
contract between the plaintiff and the defendant is inevitable because
it is the contract that initially granted the defendant the right to
possess the property; it is this same contract that the plaintiff
subsequently claims was violated or extinguished, terminating the
defendants right to possess. We ruled in Sps. Refugia v. CA that

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.

The MeTCs ruling on the rights of the parties based on its
interpretation of their contract is, of course, not conclusive, but is merely
provisional and is binding only with respect to the issue of possession.
(Emphases supplied; citations omitted)

In the case at bar, the unlawful detainer suit filed by Optimum against
Sps. Jovellanos for illegally withholding possession of the subject property
is similarly premised upon the cancellation or termination of the Contract to
Sell between them. Indeed, it was well within the jurisdiction of the MeTC
to consider the terms of the parties agreement in order to ultimately
determine the factual bases of Optimums possessory claims over the subject
property. Proceeding accordingly, the MeTC held that Sps. Jovellanoss
non-payment of the installments due had rendered the Contract to Sell
without force and effect, thus depriving the latter of their right to possess the
property subject of said contract.
36
The foregoing disposition aptly squares
with existing jurisprudence. As the Court similarly held in the Union Bank
case, the sellers cancellation of the contract to sell necessarily extinguished
the buyers right of possession over the property that was the subject of the
terminated agreement.
37
Verily, in a contract to sell, the prospective seller
binds himself to sell the property subject of the agreement exclusively to the
prospective buyer upon fulfillment of the condition agreed upon which is the
full payment of the purchase price but reserving to himself the ownership of
the subject property despite delivery thereof to the prospective buyer.
38
The
full payment of the purchase price in a contract to sell is a suspensive
condition, the non-fulfillment of which prevents the prospective sellers
obligation to convey title from becoming effective,
39
as in this case.

Further, it is significant to note that given that the Contract to Sell in
this case is one which has for its object real property to be sold on an
installment basis, the said contract is especially governed by and thus,
must be examined under the provisions of RA 6552, or the Realty
Installment Buyer Protection Act, which provides for the rights of the buyer

36
See Pagtalunan v. Dela Cruz Vda. de Manzano, 559 Phil. 658, 668 (2007).
37
See Union Bank of the Philippines v. Maunlad Homes, Inc., supra note 33, at 548-549.
38
See Coronel v. CA, 331 Phil. 294, 309 (1996).
39
See Montecalvo v. Heirs of Eugenia T. Primero, G.R. No. 165168, July 9, 2010, 624 SCRA 575, 587.
Decision 7 G.R. No. 189145
in case of his default in the payment of succeeding installments. Breaking
down the provisions of the law, the Court, in the case of Rillo v. CA,
40

explained the mechanics of cancellation under RA 6552 which are based
mainly on the amount of installments already paid by the buyer under the
subject contract, to wit:
41


Given the nature of the contract of the parties, the respondent court
correctly applied Republic Act No. 6552. Known as the Maceda Law,
R.A. No. 6552 recognizes in conditional sales of all kinds of real estate
(industrial, commercial, residential) the right of the seller to cancel the
contract upon non-payment of an installment by the buyer, which is
simply an event that prevents the obligation of the vendor to convey title
from acquiring binding force. It also provides the right of the buyer on
installments in case he defaults in the payment of succeeding
installments, viz.:

(1) Where he has paid at least two years of installments,

(a) To pay, without additional interest, the unpaid installments due within the
total grace period earned by him, which is hereby fixed at the rate of one month grace
period for every one year of installment payments made: Provided, That this right shall
be exercised by the buyer only once in every five years of the life of the contract and its
extensions, if any.

(b) 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 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.

Down payments, deposits or options on the contract shall be included in the
computation of the total number of installments made.

(2) Where he has paid less than two years in installments,

Sec. 4. x x x the seller shall give the buyer a grace period of not less than
sixty days from the date the installment became due. If the buyer fails to pay the
installments due at the expiration of the grace period, the seller may cancel the
contract 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. (Emphasis and
underscoring supplied)

Pertinently, since Sps. Jovellanos failed to pay their stipulated
monthly installments as found by the MeTC, the Court examines Optimums
compliance with Section 4 of RA 6552, as above-quoted and highlighted,
which is the provision applicable to buyers who have paid less than two (2)
years-worth of installments. Essentially, the said provision provides for three
(3) requisites before the seller may actually cancel the subject contract: first,
the seller shall give the buyer a 60-day grace period to be reckoned from
the date the installment became due; second, the seller must give the buyer a
notice of cancellation/demand for rescission by notarial act if the buyer
fails to pay the installments due at the expiration of the said grace period;

40
G.R. No. 125347, June 19, 1997, 274 SCRA 461.
41
Id. at 467-468.
Decision 8 G.R. No. 189145
and third, the seller may actually cancel the contract only after thirty (30)
days from the buyers receipt of the said notice of cancellation/demand for
rescission by notarial act.

In the present case, the 60-day grace period automatically operated
42

in favor of the buyers, Sps. Jovellanos, and took effect from the time that the
maturity dates of the installment payments lapsed. With the said grace
period having expired bereft of any installment payment on the part of Sps.
Jovellanos,
43
Optimum then issued a notarized Notice of Delinquency and
Cancellation of Contract on April 10, 2006. Finally, in proceeding with the
actual cancellation of the contract to sell, Optimum gave Sps. Jovellanos an
additional thirty (30) days within which to settle their arrears and reinstate
the contract, or sell or assign their rights to another.
44
It was only after the
expiration of the thirty day (30) period did Optimum treat the contract to sell
as effectively cancelled making as it did a final demand upon Sps.
Jovellanos to vacate the subject property only on May 25, 2006.

Thus, based on the foregoing, the Court finds that there was a valid
and effective cancellation of the Contract to Sell in accordance with Section
4 of RA 6552 and since Sps. Jovellanos had already lost their right to retain
possession of the subject property as a consequence of such cancellation,
their refusal to vacate and turn over possession to Optimum makes out a
valid case for unlawful detainer as properly adjudged by the MeTC.

WHEREFORE, the petition is GRANTED. The Decision dated May
29, 2009 and Resolution dated August 10, 2009 of the Court of Appeals in
CA-G.R. SP No. 104487 are SET ASIDE. The Decision dated June 8, 2007

42
The automatic operation of the aforesaid grace period in favor of Sps. Jovellanos is in accord with
Bricktown Devt. Corp. v. Amor Tierra Devt. Corp. (G.R. No. 112182, December 12, 1994, 239
SCRA 126, 131-132) wherein the Court held that:
A grace period is a right, not an obligation, of the debtor. When unconditionally
conferred, such as in this case, the grace period is effective without further need of
demand either calling for the payment of the obligation or for honoring the right.
The grace period must not be likened to an obligation, the non-payment of which, under
Article 1169 of the Civil Code, would generally still require judicial or extrajudicial
demand before "default" can be said to arise.
Verily, in the case at bench, the sixty-day grace period under the terms of the
contracts to sell became ipso facto operative from the moment the due payments
were not met at their stated maturities. On this score, the provisions of Article 1169 of
the Civil Code would find no relevance whatsoever. (Emphases supplied; citations
omitted)
43
Records disclose that Sps. Jovellanos had only paid the P91,500.00 down-payment and not the equal
monthly installments due on the Contract to Sell for the remaining balance, the first of which started on
June 12, 2005. (See Contract to Sell, rollo, p. 45; see CA Decision, id. at 172; see RTC Decision, id. at
108; see MeTC Decision, id. at 73-74.) Records also disclose that Sps. Jovellanos did not, in any of its
pleadings attached thereto, claim that they have paid any monthly installment due on the Contract to
Sell outside from the P91,500.00 down-payment. (See Defendants-Appellants Appeal Memorandum
dated August 1, 2007, id. at 77-78; Memorandum for Petitioners dated December 21, 2008, id. at 151-
152.)
44
Section 5 of RA 6552 states:
Sec. 5. Under Sections 3 and 4, the buyer shall have the right to sell his rights or assign
the same to another person or to reinstate the contract by updating the account during the
grace period and before actual cancellation of the contract. The deed of sale or
assignment shall be done by notarial act.
Decision 9
G.R. No. 189145
of the Metropolitan Trial Court, Branch 53, Caloocan City in Civil Case No.
06-28830 is hereby REINSTATED.
SO ORDERED.
WE CONCUR:

ARTURO D. BRION
Associate Justice
JOS
LuJ/'
ESTELA M. 'PlRLAS-BERNABE
Associate Justice
Chairperson
Associate Justice

MARIANO C. DEL CASTILLO
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Court's Division.
Associate Justice
Chairperson, Second Division
Decision 10 G.R. No. 189145
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the
Division Chairperson's Attestation, I certify that the conclusions in the
above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court's Division.
MARIA LOURDES P. A. SERENO
Chief Justice