Ejectment Actions and Contracts to Sell: Clarifying Possession Rights in Philippine Law

The Supreme Court’s 2005 decision in Keppel Bank Philippines, Inc. v. Adao (G.R. No. 158227) clarifies a recurring question in Philippine property disputes: when a buyer under a contract to sell fails to prove full payment, can the seller—or a successor-in-interest—file an ejectment case to recover possession? The ruling also reminds banks that they cannot simply rely on a certificate of title when acquiring properties, and must exercise greater diligence than ordinary buyers.

The Facts

Keppel Bank entered into a court-approved compromise agreement with Project Movers Realty and Development Corporation (PMRDC). Under that agreement, PMRDC assigned 25 properties to the bank through dacion en pago—a mode of payment where a debtor transfers ownership of property to a creditor to settle an obligation. The bank obtained condominium certificates of title over the units.

Upon inspecting the properties, the bank found Philip Adao occupying one unit. The bank sent demand letters asking him to vacate, but Adao refused, claiming he had a Contract to Sell with PMRDC dated February 7, 1995. He said he had already paid ₱3 million and offered to pay an additional ₱2.5 million. He argued that the bank’s remedy was to demand a replacement property from PMRDC, not to eject him.

The Metropolitan Trial Court dismissed the bank’s ejectment complaint. The Regional Trial Court and the Court of Appeals affirmed, ruling that the bank, as a successor-in-interest, must respect the contract to sell. The appellate court also noted that banks are held to a higher standard of care and could not claim to be purchasers in good faith.

The Issues

The Supreme Court framed three issues: (1) Is the bank bound by the contract to sell? (2) Is ejectment the proper remedy? (3) Who has the better right to physical possession?

The Ruling

The Supreme Court reversed the lower courts and ordered Adao to vacate the property.

First, the Court held that the bank was bound by the contract to sell. While the general rule is that persons dealing with registered property may rely solely on the certificate of title, this rule does not apply to banks. Banks are required to exercise more care and prudence than private individuals because their business is affected with public interest. The bank should have inspected the properties before signing the compromise agreement, which would have revealed that Adao was occupying the unit and that a contract to sell existed.

However, the Court explained that being bound by the contract does not automatically give Adao the right to possess the property. In a contract to sell, ownership is retained by the seller until full payment of the purchase price. Payment is a positive suspensive condition—the seller’s obligation to convey title only arises upon full payment. If the buyer fails to pay, there is no breach to speak of; the seller simply does not become obliged to transfer ownership.

Adao claimed he had fully paid, but his only evidence was his own affidavit. The Court found this insufficient. Under the Rules on Summary Procedure, parties must submit affidavits and other evidence to support their claims. A self-serving affidavit is not substantial evidence. The burden of proving payment rests on the party who pleads it—here, Adao.

Because Adao failed to prove full payment, he could not claim ownership. His possession was by mere tolerance, and it became unlawful once the owner demanded that he vacate. The Court stressed that this ruling was only a provisional determination of possession, not a final ruling on ownership.

Practical Takeaways

• Banks must exercise heightened diligence. When acquiring properties, banks cannot simply rely on the certificate of title. They should physically inspect the property and verify the rights of occupants. Failure to do so may bind the bank to existing contracts, such as a contract to sell.

• A contract to sell is not a contract of sale. Under a contract to sell, the seller retains ownership until full payment. The buyer’s right to possess the property depends on completing payment.

• The burden of proving payment is on the buyer. A buyer who claims to have fully paid must present credible evidence—not just a self-serving affidavit. Position papers and affidavits in summary proceedings must still contain substantial evidence.

• Ejectment may be available to the seller. If the buyer fails to prove full payment, the seller (or successor-in-interest) may file an ejectment case to recover possession, since the buyer’s possession is merely tolerated and becomes unlawful upon demand.

• Ejectment rulings are provisional. A decision in an ejectment case settles only the issue of physical possession. It does not bar a separate action involving ownership of the property.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.