On January 5, 1989, private respondents
ZENAIDA M. SANTOS, petitioner,
vs. CALIXTO SANTOS, ALBERTO
SANTOS, ROSA SANTOS-CARREON
and ANTONIO SANTOS, respondents.
QUISUMBING, J.:
This petition for review[1] seeks to annul
and set aside the decision dated March 10,
1998 of the Court of Appeals that affirmed the
decision of the Regional Trial Court of Manila,
Branch 48, dated March 17, 1993. Petitioner
also seeks to annul the resolution that denied
her motion for reconsideration.
Petitioner Zenaida M. Santos is the widow
of Salvador Santos, a brother of private
respondents Calixto, Alberto, Antonio, all
surnamed Santos and Rosa Santos-Carreon.
The spouses Jesus and Rosalia Santos
owned a parcel of land registered under TCT
No. 27571 with an area of 154 square meters,
located at Sta. Cruz Manila. On it was a four-
door apartment administered by Rosalia who
rented them out. The spouses had five
children, Salvador, Calixto, Alberto, Antonio
and Rosa.
On January 19, 1959, Jesus and Rosalia
executed a deed of sale of the properties in favor
of their children Salvador and Rosa. TCT No.
27571 became TCT No. 60819. Rosa in turn
sold her share to Salvador on November 20,
1973 which resulted in the issuance of a new
TCT No. 113221. Despite the transfer of the
property to Salvador, Rosalia continued to lease
and receive rentals from the apartment units.
On November 1, 1979, Jesus died. Six
years after or on January 9, 1985, Salvador
died, followed by Rosalia who died the following
month. Shortly after, petitioner Zenaida,
claiming to be Salvadors heir, demanded the
rent from Antonio Hombrebueno,[2] a tenant of
Rosalia. When the latter refused to pay,
Zenaida filed an ejectment suit against him
with the Metropolitan Trial Court of Manila,
Branch 24, which eventually decided in
Zenaidas favor.
instituted an action for reconveyance of
property with preliminary injunction against
petitioner in the Regional Trial Court of Manila,
where they alleged that the two deeds of sale
executed on January 19, 1959 and November
20, 1973 were simulated for lack of
consideration. They were executed to
accommodate Salvador in generating funds for
his business ventures and providing him with
greater business flexibility.
In her Answer, Zenaida denied the material
allegations in the complaint and as special and
affirmative defenses, argued that Salvador was
the registered owner of the property, which
could only be subjected to encumbrances or
liens annotated on the title; that the
respondents right to reconveyance was already
barred by prescription and laches; and that the
complaint stated no cause of action.
On March 17, 1993, the trial court decided
in private respondents favor, thus:
WHEREFORE, viewed from all the foregoing
considerations, judgment is hereby made in
favor of the plaintiffs and against the
defendants:
a) Declaring Exh. B, the deed of sale executed
by Rosalia Santos and Jesus Santos on
January 19, 1959, as entirely null and void for
being fictitious or simulated and inexistent and
without any legal force and effect;
b) Declaring Exh. D, the deed of sale executed
by Rosa Santos in favor of Salvador Santos on
November 20, 1973, also as entirely null and
void for being likewise fictitious or simulated
and inexistent and without any legal force and
effect;
c) Directing the Register of Deeds of Manila to
cancel Transfer Certificate of Title No. T-
113221 registered in the name of Salvador
Santos, as well as, Transfer Certificate of Title
No. 60819 in the names of Salvador Santos,
Rosa Santos, and consequently thereafter,
reinstating with the same legal force and effect
as if the same was not cancelled, and which
shall in all respects be entitled to like faith and
credit; Transfer Certificate of Title No. T-27571
registered in the name of Rosalia A. Santos,
married to Jesus Santos, the same to be
partitioned by the heirs of the said registered
owners in accordance with law; and
d) Making the injunction issued in this case
permanent.
Without pronouncement as to costs.
SO ORDERED.[3]
The trial court reasoned that
notwithstanding the deeds of sale transferring
the property to Salvador, the spouses Rosalia
and Jesus continued to possess the property
and to exercise rights of ownership not only by
receiving the monthly rentals, but also by
paying the realty taxes. Also, Rosalia kept the
owners duplicate copy of the title even after it
was already in the name of Salvador. Further,
the spouses had no compelling reason in 1959
to sell the property and Salvador was not
financially capable to purchase it. The deeds of
sale were therefore fictitious. Hence, the action
to assail the same does not prescribe.[4]
Upon appeal, the Court of Appeals affirmed
the trial courts decision dated March 10,
1998. It held that in order for the execution of
a public instrument to effect tradition, as
provided in Article 1498 of the Civil Code,[5] the
vendor shall have had control over the thing
sold, at the moment of sale. It was not enough
to confer upon the purchaser the ownership
and the right of possession. The thing sold
must be placed in his control. The subject
deeds of sale did not confer upon Salvador the
ownership over the subject property, because
even after the sale, the original vendors
remained in dominion, control, and possession
thereof. The appellate court further said that if
the reason for Salvadors failure to control and
possess the property was due to his
acquiescence to his mother, in deference to
Filipino custom, petitioner, at least, should
have shown evidence to prove that her husband
declared the property for tax purposes in his
name or paid the land taxes, acts which
strongly indicate control and possession. The
appellate court disposed:
WHEREFORE, finding no reversible error in the
decision appealed from, the same is hereby
AFFIRMED. No pronouncement as to costs.
SO ORDERED.[6]
Hence, this petition where petitioner avers
that the Court of Appeals erred in:
I.
...HOLDING THAT THE OWNERSHIP OVER
THE LITIGATED PROPERTY BY THE LATE
HUSBAND OF DEFENDANT-APPELLANT WAS
AFFECTED BY HIS FAILURE TO EXERCISE
CERTAIN ATTRIBUTES OF OWNERSHIP.
II
...HOLDING THAT DUE EXECUTION OF A
PUBLIC INSTRUMENT IS NOT EQUIVALENT
TO DELIVERY OF THE LAND IN DISPUTE.
III
...NOT FINDING THAT THE CAUSE OF ACTION
OF ROSALIA SANTOS HAD PRESCRIBED
AND/OR BARRED BY LACHES.
IV
...IGNORING PETITIONERS ALLEGATION TO
THE EFFECT THAT PLAINTIFF DR. ROSA [S.]
CARREON IS NOT DISQUALIFIED TO TESTIFY
AS TO THE QUESTIONED DEEDS OF SALE
CONSIDERING THAT SALVADOR SANTOS
HAS LONG BEEN DEAD.[7]
In this petition, we are asked to resolve the
following:
 1. Are payments of realty taxes and
retention of possession indications of
continued ownership by the original owners?
2. Is a sale through a public instrument
tantamount to delivery of the thing sold?
3. Did the cause of action of Rosalia Santos
and her heirs prescribe?
4. Can petitioner invoke the Dead Mans
Statute?[8]
On the first issue, petitioner contends that
the Court of Appeals erred in holding that
despite the deeds of sale in Salvadors favor,
Jesus and Rosalia still owned the property
because the spouses continued to pay the
realty taxes and possess the property. She
argues that tax declarations are not conclusive
evidence of ownership when not supported by
evidence. She avers that Salvador allowed his
mother to possess the property out of respect
to her in accordance with Filipino values.
It is true that neither tax receipts nor
declarations of ownership for taxation purposes
constitute sufficient proof of ownership. They
must be supported by other effective
proofs.[9] These requisite proofs we find present
in this case. As admitted by petitioner, despite
the sale, Jesus and Rosalia continued to
possess and administer the property and enjoy
its fruits by leasing it to third persons.[10] Both
Rosa and Salvador did not exercise any right of
ownership over it.[11] Before the second deed of
sale to transfer her 1/2 share over the property
was executed by Rosa, Salvador still sought the
permission of his mother.[12] Further, after
Salvador registered the property in his name,
he surrendered the title to his mother.[13] These
are clear indications that ownership still
remained with the original owners. In Serrano
vs. CA, 139 SCRA 179, 189 (1985), we held that
the continued collection of rentals from the
tenants by the seller of realty after execution of
alleged deed of sale is contrary to the notion of
ownership.
Petitioner argues that Salvador, in allowing
her mother to use the property even after the
sale, did so out of respect for her and out of
generosity, a factual matter beyond the
province of this Court.[14]Significantly, in Alcos
vs. IAC, 162 SCRA 823, 837 (1988), we noted
that the buyers immediate possession and
occupation of the property corroborated the
truthfulness and authenticity of the deed of
sale.Conversely, the vendors continued
possession of the property makes dubious the
contract of sale between the parties.
On the second issue, is a sale through a
public instrument tantamount to delivery of the
thing sold? Petitioner in her memorandum
invokes Article 1477[15] of the Civil Code which
provides that ownership of the thing sold is
transferred to the vendee upon its actual or
constructive delivery. Article 1498, in turn,
provides that when the sale is made through a
public instrument, its execution is equivalent
to the delivery of the thing subject of the
contract. Petitioner avers that applying said
provisions to the case, Salvador became the
owner of the subject property by virtue of the
two deeds of sale executed in his favor.
Nowhere in the Civil Code, however, does it
provide that execution of a deed of sale is a
conclusive presumption of delivery of
possession. The Code merely said that the
execution shall be equivalent to delivery. The
presumption can be rebutted by clear and
convincing evidence.[16] Presumptive delivery
can be negated by the failure of the vendee to
take actual possession of the land sold.[17]
In Danguilan vs. IAC, 168 SCRA 22, 32
(1988), we held that for the execution of a
public instrument to effect tradition, the
purchaser must be placed in control of the
thing sold. When there is no impediment to
prevent the thing sold from converting to
tenancy of the purchaser by the sole will of the
vendor, symbolic delivery through the
execution of a public instrument is
sufficient. But if, notwithstanding the
execution of the instrument, the purchaser
cannot have the enjoyment and material
tenancy nor make use of it himself or through
another in his name, then delivery has not been
effected.
As found by both the trial and appellate
courts and amply supported by the evidence on
record, Salvador was never placed in control of
the property. The original sellers retained their
control and possession. Therefore, there was
no real transfer of ownership.
Moreover, in Norkis Distributors, Inc. vs.
CA, 193 SCRA 694, 698-699 (1991), citing the
land case of Abuan vs. Garcia, 14 SCRA 759
(1965), we held that the critical factor in the
different modes of effecting delivery, which
gives legal effect to the act is the actual
intention of the vendor to deliver, and its
acceptance by the vendee. Without that
intention, there is no tradition. In the instant
case, although the spouses Jesus and Rosalia
executed a deed of sale, they did not deliver the
possession and ownership of the property to
Salvador and Rosa. They agreed to execute a
deed of sale merely to accommodate Salvador
to enable him to generate funds for his
business venture.
On the third issue, petitioner argues that
from the date of the sale from Rosa to Salvador
on November 20, 1973, up to his death on
January 9, 1985, more or less twelve years had
lapsed, and from his death up to the filing of
the case for reconveyance in the court a quo on
January 5, 1989, four years had lapsed. In
other words, it took respondents about sixteen
years to file the case below. Petitioner argues
that an action to annul a contract for lack of
consideration prescribes in ten years and even
assuming that the cause of action has not
prescribed, respondents are guilty of laches for
their inaction for a long period of time.
Has respondents cause of action
prescribed? In Lacsamana vs. CA, 288 SCRA
287, 292 (1998), we held that the right to file
an action for reconveyance on the ground that
the certificate of title was obtained by means of
a fictitious deed of sale is virtually an action for
the declaration of its nullity, which does not
prescribe. This applies squarely to the present
case. The complaint filed by respondents in the
court a quo was for the reconveyance of the
subject property to the estate of Rosalia since
the deeds of sale were simulated and
fictitious. The complaint amounts to a
declaration of nullity of a void contract, which
is imprescriptible. Hence, respondents cause of
action has not prescribed.
Neither is their action barred by
laches. The elements of laches are: 1) conduct
on the part of the defendant, or of one under
whom he claims, giving rise to the situation of
which the complaint seeks a remedy; 2) delay
in asserting the complainants rights, the
complainant having had knowledge or notice of
the defendants conduct as having been
afforded an opportunity to institute a suit; 3)
lack of knowledge or notice on the part of the
defendant that the complainant would assert
the right in which he bases his suit; and 4)
injury or prejudice to the defendant in the event
relief is accorded to the complainant, or the suit
is not held barred.[18] These elements must all
be proved positively. The conduct which caused
the complaint in the court a quo was
petitioners assertion of right of ownership as
heir of Salvador. This started in December
1985 when petitioner demanded payment of
the lease rentals from Antonio Hombrebueno,
the tenant of the apartment units. From
December 1985 up to the filing of the complaint
for reconveyance on January 5, 1989, only less
than four years had lapsed which we do not
think is unreasonable delay sufficient to bar
respondents cause of action. We likewise find
the fourth element lacking. Neither petitioner
nor her husband made considerable
investments on the property from the time it
was allegedly transferred to the latter. They
also did not enter into transactions involving
the property since they did not claim ownership
of it until December 1985. Petitioner stood to
lose nothing. As we held in the same case
of Lacsamana vs. CA, cited above, the concept
of laches is not concerned with the lapse of time
but only with the effect of unreasonable
lapse. In this case, the alleged 16 years of
respondents inaction has no adverse effect on
the petitioner to make respondents guilty of
laches.
Lastly, petitioner in her memorandum
seeks to expunge the testimony of Rosa Santos-
Carreon before the trial court in view of Sec. 23,
Rule 130 of the Revised Rules of Court,
otherwise known as the Dead Mans
Statute.[19] It is too late for petitioner, however,
to invoke said rule. The trial court in its order
dated February 5, 1990, denied petitioners
motion to disqualify respondent Rosa as a
witness.Petitioner did not appeal
therefrom. Trial ensued and Rosa testified as a
witness for respondents and was cross-
examined by petitioners counsel. By her failure
to appeal from the order allowing Rosa to
testify, she waived her right to invoke the dead
mans statute. Further, her counsel cross-
examined Rosa on matters that occurred
during Salvadors lifetime. In Goi vs. CA, 144
SCRA 222, 231 (1986), we held that protection
under the dead mans statute is effectively
waived when a counsel for a petitioner cross-
examines a private respondent on matters
occurring during the deceaseds lifetime. The
Court of Appeals cannot be faulted in ignoring
petitioner on Rosas disqualification.
WHEREFORE, the instant petition is
DENIED. The assailed decision dated March
10, 1998 of the Court of Appeals, which
sustained the judgment of the Regional Trial
Court dated March 17, 1993, in favor of herein
private respondents, is AFFIRMED. Costs
against petitioner.
SO ORDERED.
G.R. No. 92989 July 8, 1991
PERFECTO DY, JR. petitioner,
vs.
COURT OF APPEALS, GELAC TRADING INC.,
and ANTONIO V. GONZALES, respondents.
GUTIERREZ, JR., J.:
This is a petition for review on certiorari seeking
the reversal of the March 23, 1990 decision of
the Court of Appeals which ruled that the
petitioner's purchase of a farm tractor was not
validly consummated and ordered a complaint
for its recovery dismissed.
The facts as established by the records are as
follows:
The petitioner, Perfecto Dy and Wilfredo Dy are
brothers. Sometime in 1979, Wilfredo Dy
purchased a truck and a farm tractor through
financing extended by Libra Finance and
Investment Corporation (Libra). Both truck and
tractor were mortgaged to Libra as security for
the loan.
The petitioner wanted to buy the tractor from
his brother so on August 20, 1979, he wrote a
letter to Libra requesting that he be allowed to
purchase from Wilfredo Dy the said tractor and
assume the mortgage debt of the latter.
In a letter dated August 27, 1979, Libra thru its
manager, Cipriano Ares approved the
petitioner's request.
Thus, on September 4, 1979, Wilfredo Dy
executed a deed of absolute sale in favor of the
petitioner over the tractor in question.
At this time, the subject tractor was in the
possession of Libra Finance due to Wilfredo
Dy's failure to pay the amortizations.
Despite the offer of full payment by the
petitioner to Libra for the tractor, the
immediate release could not be effected
because Wilfredo Dy had obtained financing
not only for said tractor but also for a truck and
Libra insisted on full payment for both.
The petitioner was able to convince his sister,
Carol Dy-Seno, to purchase the truck so that
full payment could be made for both. On
November 22, 1979, a PNB check was issued in
the amount of P22,000.00 in favor of Libra,
thus settling in full the indebtedness of
Wilfredo Dy with the financing firm. Payment
having been effected through an out-of-town
check, Libra insisted that it be cleared first
before Libra could release the chattels in
question.
Meanwhile, Civil Case No. R-16646 entitled
"Gelac Trading, Inc. v. Wilfredo Dy", a collection
case to recover the sum of P12,269.80 was
pending in another court in Cebu.
On the strength of an alias writ of execution
issued on December 27, 1979, the provincial
sheriff was able to seize and levy on the tractor
which was in the premises of Libra in Carmen,
Cebu. The tractor was subsequently sold at
public auction where Gelac Trading was the
lone bidder. Later, Gelac sold the tractor to one
of its stockholders, Antonio Gonzales.
It was only when the check was cleared on
January 17, 1980 that the petitioner learned
about GELAC having already taken custody of
the subject tractor. Consequently, the
petitioner filed an action to recover the subject
tractor against GELAC Trading with the
Regional Trial Court of Cebu City.
On April 8, 1988, the RTC rendered judgment
in favor of the petitioner. The dispositive
portion of the decision reads as follows:
WHEREFORE, judgment is hereby
rendered in favor of the plaintiff and
against the defendant, pronouncing that
the plaintiff is the owner of the tractor,
subject matter of this case, and directing
the defendants Gelac Trading
Corporation and Antonio Gonzales to
return the same to the plaintiff herein;
directing the defendants jointly and
severally to pay to the plaintiff the
amount of P1,541.00 as expenses for
hiring a tractor; P50,000 for moral
damages; P50,000 for exemplary
damages; and to pay the cost. (Rollo, pp.
35-36)
On appeal, the Court of Appeals reversed the
decision of the RTC and dismissed the
complaint with costs against the petitioner. The
Court of Appeals held that the tractor in
question still belonged to Wilfredo Dy when it
was seized and levied by the sheriff by virtue of
the alias writ of execution issued in Civil Case
No. R-16646.
The petitioner now comes to the Court raising
the following questions:
A.
WHETHER OR NOT THE HONORABLE
COURT OF APPEALS
MISAPPREHENDED THE FACTS AND
ERRED IN NOT AFFIRMING THE TRIAL
COURT'S FINDING THAT OWNERSHIP
OF THE FARM TRACTOR HAD
ALREADY PASSED TO HEREIN
PETITIONER WHEN SAID TRACTOR
WAS LEVIED ON BY THE SHERIFF
PURSUANT TO AN ALIAS WRIT OF
EXECUTION ISSUED IN ANOTHER
CASE IN FAVOR OF RESPONDENT
GELAC TRADING INC.
B.
WHETHER OR NOT THE HONORABLE
COURT OF APPEALS EMBARKED ON
MERE CONJECTURE AND SURMISE IN
HOLDING THAT THE SALE OF THE
AFORESAID TRACTOR TO PETITIONER
WAS DONE IN FRAUD OF WILFREDO
DY'S CREDITORS, THERE BEING NO
EVIDENCE OF SUCH FRAUD AS
FOUND BY THE TRIAL COURT.
C.
WHETHER OR NOT THE HONORABLE
COURT OF APPEALS
MISAPPREHENDED THE FACTS AND
ERRED IN NOT SUSTAINING THE
FINDING OF THE TRIAL COURT THAT
THE SALE OF THE TRACTOR BY
RESPONDENT GELAC TRADING TO ITS
CO-RESPONDENT ANTONIO V.
GONZALES ON AUGUST 2, 1980 AT
WHICH TIME BOTH RESPONDENTS
ALREADY KNEW OF THE FILING OF
THE INSTANT CASE WAS VIOLATIVE
OF THE HUMAN RELATIONS
PROVISIONS OF THE CIVIL CODE AND
RENDERED THEM LIABLE FOR THE
MORAL AND EXEMPLARY DAMAGES
SLAPPED AGAINST THEM BY THE
TRIAL COURT. (Rollo, p. 13)
The respondents claim that at the time of the
execution of the deed of sale, no constructive
delivery was effected since the consummation
of the sale depended upon the clearance and
encashment of the check which was issued in
payment of the subject tractor.
In the case of Servicewide Specialists Inc. v.
Intermediate Appellate Court. (174 SCRA 80
[1989]), we stated that:
xxx xxx xxx
The rule is settled that the chattel
mortgagor continues to be the owner of
the property, and therefore, has the
power to alienate the same; however, he
is obliged under pain of penal liability, to
secure the written consent of the
mortgagee. (Francisco, Vicente, Jr.,
Revised Rules of Court in the
Philippines, (1972), Volume IV-B Part 1,
p. 525). Thus, the instruments of
mortgage are binding, while they
subsist, not only upon the parties
executing them but also upon those who
later, by purchase or otherwise, acquire
the properties referred to therein.
The absence of the written consent of the
mortgagee to the sale of the mortgaged
property in favor of a third person,
therefore, affects not the validity of the
sale but only the penal liability of the
mortgagor under the Revised Penal Code
and the binding effect of such sale on the
mortgagee under the Deed of Chattel
Mortgage.
xxx xxx xxx
The mortgagor who gave the property as
security under a chattel mortgage did not part
with the ownership over the same. He had the
right to sell it although he was under the
obligation to secure the written consent of the
mortgagee or he lays himself open to criminal
prosecution under the provision of Article 319
par. 2 of the Revised Penal Code. And even if no
consent was obtained from the mortgagee, the
validity of the sale would still not be affected.
Thus, we see no reason why Wilfredo Dy, as the
chattel mortgagor can not sell the subject
tractor. There is no dispute that the consent of
Libra Finance was obtained in the instant case.
In a letter dated August 27, 1979, Libra allowed
the petitioner to purchase the tractor and
assume the mortgage debt of his brother. The
sale between the brothers was therefore valid
and binding as between them and to the
mortgagee, as well.
Article 1496 of the Civil Code states that the
ownership of the thing sold is acquired by the
vendee from the moment it is delivered to him
in any of the ways specified in Articles 1497 to
1501 or in any other manner signing an
agreement that the possession is transferred
from the vendor to the vendee. We agree with
the petitioner that Articles 1498 and 1499 are
applicable in the case at bar.
Article 1498 states:
 Art. 1498. When the sale is made
through a public instrument, the
execution thereof shall be equivalent to
the delivery of the thing which is the
object of the contract, if from the deed
the contrary does not appear or cannot
clearly be inferred.
xxx xxx xxx
Article 1499 provides:
Article 1499. The delivery of movable
property may likewise be made by the
mere consent or agreement of the
contracting parties, if the thing sold
cannot be transferred to the possession
of the vendee at the time of the sale, or if
the latter already had it in his
possession for any other reason. (1463a)
In the instant case, actual delivery of the
subject tractor could not be made. However,
there was constructive delivery already upon
the execution of the public instrument
pursuant to Article 1498 and upon the consent
or agreement of the parties when the thing sold
cannot be immediately transferred to the
possession of the vendee. (Art. 1499)
The respondent court avers that the vendor
must first have control and possession of the
thing before he could transfer ownership by
constructive delivery. Here, it was Libra
Finance which was in possession of the subject
tractor due to Wilfredo's failure to pay the
amortization as a preliminary step to
foreclosure. As mortgagee, he has the right of
foreclosure upon default by the mortgagor in
the performance of the conditions mentioned in
the contract of mortgage. The law implies that
the mortgagee is entitled to possess the
mortgaged property because possession is
necessary in order to enable him to have the
property sold.
While it is true that Wilfredo Dy was not in
actual possession and control of the subject
tractor, his right of ownership was not divested
from him upon his default. Neither could it be
said that Libra was the owner of the subject
tractor because the mortgagee can not become
the owner of or convert and appropriate to
himself the property mortgaged. (Article 2088,
Civil Code) Said property continues to belong to
the mortgagor. The only remedy given to the
mortgagee is to have said property sold at
public auction and the proceeds of the sale
applied to the payment of the obligation
secured by the mortgagee. (See Martinez v.
PNB, 93 Phil. 765, 767 [1953]) There is no
showing that Libra Finance has already
foreclosed the mortgage and that it was the new
owner of the subject tractor. Undeniably, Libra
gave its consent to the sale of the subject
tractor to the petitioner. It was aware of the
transfer of rights to the petitioner.
Where a third person purchases the mortgaged
property, he automatically steps into the shoes
of the original mortgagor. (See Industrial
Finance Corp. v. Apostol, 177 SCRA 521
[1989]). His right of ownership shall be subject
to the mortgage of the thing sold to him. In the
case at bar, the petitioner was fully aware of the
existing mortgage of the subject tractor to
Libra. In fact, when he was obtaining Libra's
consent to the sale, he volunteered to assume
the remaining balance of the mortgage debt of
Wilfredo Dy which Libra undeniably agreed to.
The payment of the check was actually
intended to extinguish the mortgage obligation
so that the tractor could be released to the
petitioner. It was never intended nor could it be
considered as payment of the purchase price
because the relationship between Libra and the
petitioner is not one of sale but still a mortgage.
The clearing or encashment of the check which
produced the effect of payment determined the
full payment of the money obligation and the
release of the chattel mortgage. It was not
determinative of the consummation of the sale.
The transaction between the brothers is
distinct and apart from the transaction
between Libra and the petitioner. The
contention, therefore, that the consummation
of the sale depended upon the encashment of
the check is untenable.
The sale of the subject tractor was
consummated upon the execution of the public
instrument on September 4, 1979. At this time
constructive delivery was already effected.
Hence, the subject tractor was no longer owned
by Wilfredo Dy when it was levied upon by the
sheriff in December, 1979. Well settled is the
rule that only properties unquestionably owned
by the judgment debtor and which are not
exempt by law from execution should be levied
upon or sought to be levied upon. For the power
of the court in the execution of its judgment
extends only over properties belonging to the
judgment debtor. (Consolidated Bank and
Trust Corp. v. Court of Appeals, G.R. No.
78771, January 23, 1991).
The respondents further claim that at that time
the sheriff levied on the tractor and took legal
custody thereof no one ever protested or filed a
third party claim.
It is inconsequential whether a third party
claim has been filed or not by the petitioner
during the time the sheriff levied on the subject
tractor. A person other than the judgment
debtor who claims ownership or right over
levied properties is not precluded, however,
from taking other legal remedies to prosecute
his claim. (Consolidated Bank and Trust Corp.
v. Court of Appeals, supra) This is precisely
what the petitioner did when he filed the action
for replevin with the RTC.
Anent the second and third issues raised, the
Court accords great respect and weight to the
findings of fact of the trial court.1wphi1 There
is no sufficient evidence to show that the sale
of the tractor was in fraud of Wilfredo and
creditors. While it is true that Wilfredo and
Perfecto are brothers, this fact alone does not
give rise to the presumption that the sale was
fraudulent. Relationship is not a badge of fraud
(Goquiolay v. Sycip, 9 SCRA 663 [1963]).
Moreover, fraud can not be presumed; it must
be established by clear convincing evidence.
We agree with the trial court's findings that the
actuations of GELAC Trading were indeed
violative of the provisions on human relations.
As found by the trial court, GELAC knew very
well of the transfer of the property to the
petitioners on July 14, 1980 when it received
summons based on the complaint for replevin
filed with the RTC by the petitioner.
Notwithstanding said summons, it continued
to sell the subject tractor to one of its
stockholders on August 2, 1980.
WHEREFORE, the petition is hereby
GRANTED. The decision of the Court of Appeals
promulgated on March 23, 1990 is SET ASIDE
and the decision of the Regional Trial Court
dated April 8, 1988 is REINSTATED.
SO ORDERED.
G.R. No. L-12342 August 3, 1918
A. A. ADDISON, plaintiff-appellant,
vs.
MARCIANA FELIX and BALBINO
TIOCO, defendants-appellees.
FISHER, J.:
By a public instrument dated June 11, 1914,
the plaintiff sold to the defendant Marciana
Felix, with the consent of her husband, the
defendant Balbino Tioco, four parcels of land,
described in the instrument. The defendant
Felix paid, at the time of the execution of the
deed, the sum of P3,000 on account of the
purchase price, and bound herself to pay the
remainder in installments, the first of P2,000
on July 15, 1914, and the second of P5,000
thirty days after the issuance to her of a
certificate of title under the Land Registration
Act, and further, within ten years from the date
of such title P10, for each coconut tree in
bearing and P5 for each such tree not in
bearing, that might be growing on said four
parcels of land on the date of the issuance of
title to her, with the condition that the total
price should not exceed P85,000. It was further
stipulated that the purchaser was to deliver to
the vendor 25 per centum of the value of the
products that she might obtain from the four
parcels "from the moment she takes possession
of them until the Torrens certificate of title be
issued in her favor."
It was also covenanted that "within one year
from the date of the certificate of title in favor of
Marciana Felix, this latter may rescind the
present contract of purchase and sale, in which
case Marciana Felix shall be obliged to return
to me, A. A. Addison, the net value of all the
products of the four parcels sold, and I shall
obliged to return to her, Marciana Felix, all the
sums that she may have paid me, together with
interest at the rate of 10 per cent per annum."
In January, 1915, the vendor, A. A. Addison,
filed suit in Court of First Instance of Manila to
compel Marciana Felix to make payment of the
first installment of P2,000, demandable in
accordance with the terms of the contract of
sale aforementioned, on July 15, 1914, and of
the interest in arrears, at the stipulated rate of
8 per cent per annum. The defendant, jointly
with her husband, answered the complaint and
alleged by way of special defense that the
plaintiff had absolutely failed to deliver to the
defendant the lands that were the subject
matter of the sale, notwithstanding the
demands made upon him for this purpose. She
therefore asked that she be absolved from the
complaint, and that, after a declaration of the
rescission of the contract of the purchase and
sale of said lands, the plaintiff be ordered to
refund the P3,000 that had been paid to him on
account, together with the interest agreed
upon, and to pay an indemnity for the losses
and damages which the defendant alleged she
had suffered through the plaintiff's non-
fulfillment of the contract.
The evidence adduced shows that after the
execution of the deed of the sale the plaintiff, at
the request of the purchaser, went to Lucena,
accompanied by a representative of the latter,
for the purpose of designating and delivering
the lands sold. He was able to designate only
two of the four parcels, and more than two-
thirds of these two were found to be in the
possession of one Juan Villafuerte, who
claimed to be the owner of the parts so
occupied by him. The plaintiff admitted that the
purchaser would have to bring suit to obtain
possession of the land (sten. notes, record, p.
5). In August, 1914, the surveyor Santamaria
went to Lucena, at the request of the plaintiff
and accompanied by him, in order to survey the
land sold to the defendant; but he surveyed
only two parcels, which are those occupied
mainly by the brothers Leon and Julio
Villafuerte. He did not survey the other parcels,
as they were not designated to him by the
plaintiff. In order to make this survey it was
necessary to obtain from the Land Court a writ
of injunction against the occupants, and for the
purpose of the issuance of this writ the
defendant, in June, 1914, filed an application
with the Land Court for the registration in her
name of four parcels of land described in the
deed of sale executed in her favor by the
plaintiff. The proceedings in the matter of this
application were subsequently dismissed, for
failure to present the required plans within the
period of the time allowed for the purpose.
The trial court rendered judgment in behalf of
the defendant, holding the contract of sale to be
rescinded and ordering the return to the
plaintiff the P3,000 paid on account of the
price, together with interest thereon at the rate
of 10 per cent per annum. From this judgment
the plaintiff appealed.
In decreeing the rescission of the contract, the
trial judge rested his conclusion solely on the
indisputable fact that up to that time the lands
sold had not been registered in accordance with
the Torrens system, and on the terms of the
second paragraph of clause (h) of the contract,
whereby it is stipulated that ". . . within one
year from the date of the certificate of title in
favor of Marciana Felix, this latter may rescind
the present contract of purchase and sale . . .
."
The appellant objects, and rightly, that the
cross-complaint is not founded on the
hypothesis of the conventional rescission relied
upon by the court, but on the failure to deliver
the land sold. He argues that the right to
rescind the contract by virtue of the special
agreement not only did not exist from the
moment of the execution of the contract up to
one year after the registration of the land, but
does not accrue until the land is registered. The
wording of the clause, in fact, substantiates the
contention. The one year's deliberation granted
to the purchaser was to be counted "from the
date of the certificate of title ... ." Therefore the
right to elect to rescind the contract was
subject to a condition, namely, the issuance of
the title. The record show that up to the present
time that condition has not been fulfilled;
consequently the defendant cannot be heard to
invoke a right which depends on the existence
of that condition. If in the cross-complaint it
had been alleged that the fulfillment of the
condition was impossible for reasons imputable
to the plaintiff, and if this allegation had been
proven, perhaps the condition would have been
considered as fulfilled (arts. 1117, 1118, and
1119, Civ. Code); but this issue was not
presented in the defendant's answer.
However, although we are not in agreement
with the reasoning found in the decision
appealed from, we consider it to be correct in
its result. The record shows that the plaintiff
did not deliver the thing sold. With respect to
two of the parcels of land, he was not even able
to show them to the purchaser; and as regards
the other two, more than two-thirds of their
area was in the hostile and adverse possession
of a third person.
The Code imposes upon the vendor the
obligation to deliver the thing sold. The thing is
considered to be delivered when it is placed "in
the hands and possession of the vendee." (Civ.
Code, art. 1462.) It is true that the same article
declares that the execution of a public
instruments is equivalent to the delivery of the
thing which is the object of the contract, but, in
order that this symbolic delivery may produce
the effect of tradition, it is necessary that the
vendor shall have had such control over the
thing sold that, at the moment of the sale, its
material delivery could have been made. It is
not enough to confer upon the purchaser
the ownership and the right of possession. The
thing sold must be placed in his control. When
there is no impediment whatever to prevent the
thing sold passing into the tenancy of the
purchaser by the sole will of the vendor,
symbolic delivery through the execution of a
public instrument is sufficient. But if,
notwithstanding the execution of the
instrument, the purchaser cannot have the
enjoyment and material tenancy of the thing
and make use of it himself or through another
in his name, because such tenancy and
enjoyment are opposed by the interposition of
another will, then fiction yields to reality the
delivery has not been effected.
As Dalloz rightly says (Gen. Rep., vol. 43, p.
174) in his commentaries on article 1604 of the
French Civil code, "the word "delivery"
expresses a complex idea . . . the abandonment
of the thing by the person who makes the
delivery and the taking control of it by the
person to whom the delivery is made."
The execution of a public instrument is
sufficient for the purposes of the abandonment
made by the vendor; but it is not always
sufficient to permit of the apprehension of the
thing by the purchaser.
The supreme court of Spain, interpreting article
1462 of the Civil Code, held in its decision of
November 10, 1903, (Civ. Rep., vol. 96, p. 560)
that this article "merely declares that when the
sale is made through the means of a public
instrument, the execution of this latter is
equivalent to the delivery of the thing sold:
which does not and cannot mean that this
fictitious tradition necessarily implies the real
tradition of the thing sold, for it is
incontrovertible that, while its ownership still
pertains to the vendor (and with greater reason
if it does not), a third person may be in
possession of the same thing; wherefore,
though, as a general rule, he who purchases by
means of a public instrument should be
deemed . . . to be the possessor in fact, yet this
presumption gives way before proof to the
contrary."
It is evident, then, in the case at bar, that the
mere execution of the instrument was not a
fulfillment of the vendors' obligation to deliver
the thing sold, and that from such non-
fulfillment arises the purchaser's right to
demand, as she has demanded, the rescission
of the sale and the return of the price. (Civ.
Code, arts. 1506 and 1124.)
Of course if the sale had been made under the
express agreement of imposing upon the
purchaser the obligation to take the necessary
steps to obtain the material possession of the
thing sold, and it were proven that she knew
that the thing was in the possession of a third
person claiming to have property rights therein,
such agreement would be perfectly valid. But
there is nothing in the instrument which would
indicate, even implicitly, that such was the
agreement. It is true, as the appellant argues,
that the obligation was incumbent upon the
defendant Marciana Felix to apply for and
obtain the registration of the land in the new
registry of property; but from this it cannot be
concluded that she had to await the final
decision of the Court of Land Registration, in
order to be able to enjoy the property sold. On
the contrary, it was expressly stipulated in the
contract that the purchaser should deliver to
the vendor one-fourth "of the products ... of the
aforesaid four parcels from the moment when
she takes possession of them until the Torrens
certificate of title be issued in her favor." This
obviously shows that it was not forseen that the
purchaser might be deprived of her possession
during the course of the registration
proceedings, but that the transaction rested on
the assumption that she was to have, during
said period, the material possession and
enjoyment of the four parcels of land.
Inasmuch as the rescission is made by virtue of
the provisions of law and not by contractual
agreement, it is not the conventional but the
legal interest that is demandable.
It is therefore held that the contract of
purchase and sale entered into by and between
the plaintiff and the defendant on June 11,
1914, is rescinded, and the plaintiff is ordered
to make restitution of the sum of P3,000
received by him on account of the price of the
sale, together with interest thereon at the legal
rate of 6 per annum from the date of the filing
of the complaint until payment, with the costs
of both instances against the appellant. So
ordered.
Torres, Johnson, Street, Malcolm and Avancea,
JJ., concur.
FELIX DANGUILAN, petitioner,
vs.
INTERMEDIATE APPELLATE COURT,
APOLONIA MELAD, assisted by her husband,
JOSE TAGACAY, respondents.
CRUZ, J.:
The subject of this dispute is the two lots owned
by Domingo Melad which is claimed by both the
petitioner and the respondent. The trial court
believed the petitioner but the respondent
court, on appeal, upheld the respondent. The
case is now before us for a resolution of the
issues once and for all.
On January 29, 1962, the respondent filed a
complaint against the petitioner in the then
Court of First Instance of Cagayan for recovery
of a farm lot and a residential lot which she
claimed she had purchased from Domingo
Melad in 1943 and were now being unlawfully
withheld by the defendant. 1 In his answer, the
petitioner denied the allegation and averred
that he was the owner of the said lots of which
he had been in open, continuous and adverse
possession, having acquired them from
Domingo Melad in 1941 and 1943. 2 The case
was dismissed for failure to prosecute but was
refiled in 1967. 3
At the trial, the plaintiff presented a deed of sale
dated December 4, 1943, purportedly signed by
Domingo Melad and duly notarized, which
conveyed the said properties to her for the sum
of P80.00. 4 She said the amount was earned
by her mother as a worker at the Tabacalera
factory. She claimed to be the illegitimate
daughter of Domingo Melad, with whom she
and her mother were living when he died in
1945. She moved out of the farm only when in
1946 Felix Danguilan approached her and
asked permission to cultivate the land and to
stay therein. She had agreed on condition that
he would deliver part of the harvest from the
farm to her, which he did from that year to
1958. The deliveries having stopped, she then
consulted the municipal judge who advised her
to file the complaint against Danguilan. The
plaintiff 's mother, her only other witness,
corroborated this testimony. 5
For his part, the defendant testified that he was
the husband of Isidra Melad, Domingo's niece,
whom he and his wife Juana Malupang had
taken into their home as their ward as they had
no children of their own. He and his wife lived
with the couple in their house on the residential
lot and helped Domingo with the cultivation of
the farm. Domingo Melad signed in 1941 a
private instrument in which he gave the
defendant the farm and in 1943 another private
instrument in which he also gave him the
residential lot, on the understanding that the
latter would take care of the grantor and would
bury him upon his death. 6 Danguilan
presented three other witnesses 7 to
corroborate his statements and to prove that he
had been living in the land since his marriage
to Isidra and had remained in possession
thereof after Domingo Melad's death in 1945.
Two of said witnesses declared that neither the
plaintiff nor her mother lived in the land with
Domingo Melad. 8
The decision of the trial court was based mainly
on the issue of possession. Weighing the
evidence presented by the parties, the
judge 9 held that the defendant was more
believable and that the plaintiff's evidence was
"unpersuasive and unconvincing." It was held
that the plaintiff's own declaration that she
moved out of the property in 1946 and left it in
the possession of the defendant was
contradictory to her claim of ownership. She
was also inconsistent when she testified first
that the defendant was her tenant and later in
rebuttal that he was her administrator. The
decision concluded that where there was doubt
as to the ownership of the property, the
presumption was in favor of the one actually
occupying the same, which in this case was the
defendant. 10
The review by the respondent court 11 of this
decision was manifestly less than thorough.
For the most part it merely affirmed the factual
findings of the trial court except for an
irrelevant modification, and it was only toward
the end that it went to and resolved what it
considered the lone decisive issue.
The respondent court held that Exhibits 2-b
and 3-a, by virtue of which Domingo Melad had
conveyed the two parcels of land to the
petitioner, were null and void. The reason was
that they were donations of real property and
as such should have been effected through a
public instrument. It then set aside the
appealed decision and declared the
respondents the true and lawful owners of the
disputed property.
The said exhibits read as follows:
EXHIBIT 2-b is quoted as
follows: 12
I, DOMINGO MELAD, of legal age,
married, do hereby declare in this
receipt the truth of my giving to
Felix Danguilan, my agricultural
land located at Barrio Fugu-
Macusi, Penablanca, Province of
Cagayan, Philippine Islands; that
this land is registered under my
name; that I hereby declare and
bind myself that there is no one to
whom I will deliver this land
except to him as he will be the one
responsible for me in the event
that I will die and also for all other
things needed and necessary for
me, he will be responsible
because of this land I am giving to
him; that it is true that I have
nieces and nephews but they are
not living with us and there is no
one to whom I will give my land
except to Felix Danguilan for he
lives with me and this is the
length175 m. and the width is
150 m.
IN WITNESS WHEREOF, I hereby
sign my name below and also
those present in the execution of
this receipt this 14th day of
September 1941.
Penablanca Cagayan, September
14, 1941.
(SGD.) DOMINGO MELAD
WITNESSES:
1. (T.M.) ISIDRO MELAD
2. (SGD.) FELIX DANGUILAN
3. (T.M.) ILLEGIBLE
EXHIBIT 3-a is quoted as
follows: 13
I, DOMINGO MELAD, a resident
of Centro, Penablanca, Province
of Cagayan, do hereby swear and
declare the truth that I have
delivered my residential lot at
Centro, Penablanca, Cagayan, to
Felix Danguilan, my son-in-law
because I have no child; that I
have thought of giving him my
land because he will be the one to
take care of SHELTERING me or
bury me when I die and this is
why I have thought of executing
this document; that the
boundaries of this lot ison the
east, Cresencio Danguilan; on the
north, Arellano Street; on the
south by Pastor Lagundi and on
the west, Pablo Pelagio and the
area of this lot is 35 meters going
south; width and length
beginning west to east is 40
meters.
IN WITNESS HEREOF, I hereby
sign this receipt this 18th day of
December 1943.
(SGD.) DOMINGO MELAD
WITNESSES:
(SGD.) ILLEGIBLE
(SGD.) DANIEL
ARAO
It is our view, considering the language of the
two instruments, that Domingo Melad did
intend to donate the properties to the
petitioner, as the private respondent contends.
We do not think, however, that the donee was
moved by pure liberality. While truly donations,
the conveyances were onerous donations as the
properties were given to the petitioner in
exchange for his obligation to take care of the
donee for the rest of his life and provide for his
burial. Hence, it was not covered by the rule in
Article 749 of the Civil Code requiring
donations of real properties to be effected
through a public instrument. The case at bar
comes squarely under the doctrine laid down
in Manalo v. De Mesa, 14 where the Court held:
 There can be no doubt that the
donation in question was made
for a valuable consideration,
since the donors made it
conditional upon the donees'
bearing the expenses that might
be occasioned by the death and
burial of the donor Placida
Manalo, a condition and
obligation which the donee
Gregorio de Mesa carried out in
his own behalf and for his wife
Leoncia Manalo; therefore, in
order to determine whether or not
said donation is valid and
effective it should be sufficient to
demonstrate that, as a contract, it
embraces the conditions the law
requires and is valid and effective,
although not recorded in a public
instrument.
The private respondent argues that as there
was no equivalence between the value of the
lands donated and the services for which they
were being exchanged, the two transactions
should be considered pure or gratuitous
donations of real rights, hence, they should
have been effected through a public instrument
and not mere private writings. However, no
evidence has been adduced to support her
contention that the values exchanged were
disproportionate or unequal.
On the other hand, both the trial court and the
respondent court have affirmed the factual
allegation that the petitioner did take care of
Domingo Melad and later arranged for his
burial in accordance with the condition
imposed by the donor. It is alleged and not
denied that he died when he was almost one
hundred years old, 15 which would mean that
the petitioner farmed the land practically by
himself and so provided for the donee (and his
wife) during the latter part of Domingo Melad's
life. We may assume that there was a fair
exchange between the donor and the donee
that made the transaction an onerous
donation.
Regarding the private respondent's claim that
she had purchased the properties by virtue of a
deed of sale, the respondent court had only the
following to say: "Exhibit 'E' taken together with
the documentary and oral evidence shows that
the preponderance of evidence is in favor of the
appellants." This was, we think, a rather
superficial way of resolving such a basic and
important issue.
The deed of sale was allegedly executed when
the respondent was only three years old and
the consideration was supposedly paid by her
mother, Maria Yedan from her earnings as a
wage worker in a factory. 16 This was itself a
suspicious circumstance, one may well wonder
why the transfer was not made to the mother
herself, who was after all the one paying for the
lands. The sale was made out in favor of
Apolonia Melad although she had been using
the surname Yedan her mother's surname,
before that instrument was signed and in fact
even after she got married. 17The averment was
also made that the contract was simulated and
prepared after Domingo Melad's death in
1945. 18It was also alleged that even after the
supposed execution of the said contract, the
respondent considered Domingo Melad the
owner of the properties and that she had never
occupied the same. 19
Considering these serious challenges, the
appellate court could have devoted a little more
time to examining Exhibit "E" and the
circumstances surrounding its execution
before pronouncing its validity in the manner
described above. While it is true that the due
execution of a public instrument is presumed,
the presumption is disputable and will yield to
contradictory evidence, which in this case was
not refuted.
At any rate, even assuming the validity of the
deed of sale, the record shows that the private
respondent did not take possession of the
disputed properties and indeed waited until
1962 to file this action for recovery of the lands
from the petitioner. If she did have possession,
she transferred the same to the petitioner in
1946, by her own sworn admission, and moved
out to another lot belonging to her step-
brother. 20 Her claim that the petitioner was
her tenant (later changed to administrator) was
disbelieved by the trial court, and properly so,
for its inconsistency. In short, she failed to
show that she consummated the contract of
sale by actual delivery of the properties to her
and her actual possession thereof in concept of
purchaser-owner.
As was held in Garchitorena v. Almeda: 21
Since in this jurisdiction it is a
fundamental and elementary
principle that ownership does not
pass by mere stipulation but only
by delivery (Civil Code, Art. 1095;
Fidelity and Surety Co. v. Wilson,
8 Phil. 51), and the execution of a
public document does not
constitute sufficient delivery
where the property involved is in
the actual and adverse
possession of third persons
(Addison vs. Felix, 38 Phil. 404;
Masallo vs. Cesar, 39 Phil. 134), it
becomes incontestable that even
if included in the contract, the
ownership of the property in
dispute did not pass thereby to
Mariano Garchitorena. Not
having become the owner for lack
of delivery, Mariano Garchitorena
cannot presume to recover the
property from its present
possessors. His action, therefore,
is not one of revindicacion, but
one against his vendor for specific
performance of the sale to him.
In the aforecited case of Fidelity and Deposit Co.
v. Wilson, 22 Justice Mapa declared for the
Court:
Therefore, in our Civil Code it is a
fundamental principle in all
matters of contracts and a well-
known doctrine of law that "non
mudis pactis sed traditione
dominia rerum transferuntur". In
conformity with said doctrine as
established in paragraph 2 of
article 609 of said code, that "the
ownership and other property
rights are acquired and
transmitted by law, by gift, by
testate or intestate succession,
and, in consequence of certain
contracts, by tradition". And as
the logical application of this
disposition article 1095
prescribes the following: "A
creditor has the rights to the
fruits of a thing from the time the
obligation to deliver it arises.
However, he shall not acquire a
real right" (and the ownership is
surely such) "until the property
has been delivered to him."
In accordance with such
disposition and provisions the
delivery of a thing constitutes a
necessary and indispensable
requisite for the purpose of
acquiring the ownership of the
same by virtue of a contract. As
Manresa states in his
Commentaries on the Civil Code,
volume 10, pages 339 and 340:
"Our law does not admit the
doctrine of the transfer of
property by mere consent but
limits the effect of the agreement
to the due execution of the
contract. ... The ownership, the
property right, is only derived
from the delivery of a thing ... "
As for the argument that symbolic delivery was
effected through the deed of sale, which was a
public instrument, the Court has held:
 The Code imposes upon the
vendor the obligation
to deliver the thing sold. The
thing is considered to be delivered
when it is placed "in the hands
and possession of the vendee."
(Civil Code, art. 1462). It is true
that the same article declares that
the execution of a public
instrument is equivalent to the
delivery of the thing which is the
object of the contract, but, in
order that this symbolic delivery
may produce the effect of
tradition, it is necessary that the
vendor shall have had
such control over the thing sold
that, at the moment of the sale,
its material delivery could have
been made. It is not enough to
confer upon the purchaser
the ownership and the right of
possession. The thing sold must
be placed in his control.When
there is no impediment whatever
to prevent the thing sold passing
into the tenancy of the purchaser
by the sole will of the vendor,
symbolic delivery through the
execution of a public instrument
is sufficient. But if,
notwithstanding the execution of
the instrument, the purchaser
cannot have the enjoyment and
material tenancy of the thing and
make use of it himself or through
another in his name, because
such tenancy and enjoyment are
opposed by the interposition of
another will, then fiction yields to
realitythe delivery has not been
effected. 23
There is no dispute that it is the petitioner and
not the private respondent who is in actual
possession of the litigated properties. Even if
the respective claims of the parties were both to
be discarded as being inherently weak, the
decision should still incline in favor of the
petitioner pursuant to the doctrine announced
in Santos & Espinosa v. Estejada 24 where the
Court announced:
If the claim of both the plaintiff
and the defendant are weak,
judgment must be for the
defendant, for the latter being in
possession is presumed to be the
owner, and cannot be obliged to
show or prove a better right.
WHEREFORE, the decision of the respondent
court is SET ASIDE and that of the trial court
REINSTATED, with costs against the private
respondent. It is so ordered.
Narvasa (Chairman), Gancayco, Grio-Aquino
and Medialdea, JJ., concur.
CALIXTO PASAGUI and FAUSTA
MOSAR, plaintiffs-appellants,
vs.
ESTER T. VILLABLANCA, ZOSIMO
VILLABLANCA, EUSTAQUIA BOCAR and
CATALINA BOCAR defendants-appellees.
ANTONIO, J.:
The only issue posed by this appeal is whether
or not, from the nature of the action pleaded as
appears in the allegations of the complaint, the
aforesaid action is one of forcible entry, within
the exclusive jurisdiction of the municipal
court. .
On February 4, 1963, appellants Calixto
Pasagui and Fausta Mosar filed a complaint
with the Court of First Instance at Tacloban
City, alleging that onNovember 15, 1962, for
and in consideration of Two Thousand Eight
Hundred Pesos (P2,800.00), they bought from
appellees Eustaquia Bocar and Catalina Bocar
a parcel of agricultural land with an area of
2.6814 hectares, situated in Hamindangon,
Pastrana, Leyte; that the corresponding
document of sale was executed, notarized on
the same date, and recorded in the Registry of
Deeds of Tacloban, Leyte on November 16,
1962; that during the first week of February,
1963, defendant spouses Ester T. Villablanca
and Zosimo Villablanca, "illegally and without
any right, whatsoever, took possession of the
above property harvesting coconuts from the
coconut plantation thereon, thus depriving
plaintiffs" of its possession; that despite
demands made by the plaintiffs upon the
above-mentioned defendants "to surrender to
them the above-described property and its
possession" the latter failed or refused to return
said parcel of land to the former, causing them
damage; and that Eustaquia and Catalina
Bocar, vendors of the property, are included
defendants in the complaint by virtue of the
warranty clause contained in the document of
sale. Plaintiffs prayed for a decision ordering
defendants to surrender the possession of the
parcel of land above-described to them and to
pay damages in the amounts specified. .
On February 21, 1963, appellees moved to
dismiss the complaint on the ground that the
Court of First Instance had no jurisdiction over
the subject matter, the action being one of
forcible entry. Appellants opposed the Motion
to Dismiss asserting that the action is not one
for forcible entry inasmuch as in the complaint,
there is no allegation that the deprivation of
possession was effected through "force,
intimidation, threat, strategy or stealth." .
On May 13, 1963, the trial court issued an
order dismissing the complaint for lack of
jurisdiction, it appearing from the allegations in
the complaint that the case is one for forcible
entry which belongs to the exclusive
jurisdiction of the Justice of the Peace (now
Municipal Court) of Pastrana, Leyte. The first
Motion for Reconsideration was denied on May
27, 1963 and the second was likewise denied
on July 5, 1963. From the aforementioned
orders, appeal on a pure question of law was
interposed to this Court. .
It is well-settled that what determines the
jurisdiction of the municipal court in a forcible
entry case is the nature of the action pleaded
as appears from the allegations in the
complaint. In ascertaining whether or not the
action is one of forcible entry within the original
exclusive jurisdiction of the municipal court,
the averments of the complaint and the
character of the relief sought are the ones to be
consulted.. 1 .
In the case at bar, the complaint does not allege
that the plaintiffs were in physical possession
of the land and have been deprived of that
possession through force, intimidation, threat,
strategy, or stealth. It simply avers that
plaintiffs-appellants bought on November 12,
1962 from defendants-appellees Eustaquia
Bocar and Catalina Bocar the parcel of land in
question for the amount of P2,800.00; that a
deed of sale was executed, notarized and
registered;that "during this first week of
February, 1963, defendants Ester T.
Villablanca and her husband, Zosimo
Villablanca, illegally and without any right
whatsoever, took possession of the above
described property, harvesting coconuts from
the coconut plantation therein, thus depriving
of its possession herein plaintiffs, and causing
them damages for the amount of EIGHT
HUNDRED PESOS (P800.00)"; that for the
purpose of enforcing the vendors' warranty in
case of eviction, Eustaquia Bocar and Catalina
Bocar were also included as defendants; and,
therefore, plaintiffs-appellants pray that a
decision be rendered, ordering (a) defendants
Ester T. Villablanca and her husband, Zosimo
Villablanca, "to surrender the possession of the
above described property to said plaintiffs"; (b)
defendants Ester T. Villablanca and her
husband, Zosimo Villablanca, "to pay to said
plaintiffs the amount of EIGHT HUNDRED
PESOS (P800.00) as damages for the
usurpation by them of said property"; and (c)
defendants Eustaquia Bocar and Catalina
Bocar "to pay the plaintiffs the amount of
P2,800.00, plus incidental expenses, as
provided for by Art. 1555 of the Civil Code, in
case of eviction or loss of ownership to said
above described property on the part of
plaintiffs." .
It is true that the execution of the deed of
absolute sale in a public instrument is
equivalent to delivery of the land subject of the
sale.2 This presumptive delivery only holds true
when there is no impediment that may prevent
the passing of the property from the hands of
the vendor into those of the vendee. It can be
negated by the reality that the vendees actually
failed to obtain material possession of the land
subject of the sale.. 3 It appears from the
records of the case at bar that plaintiffs-
appellants had not acquired physical
possession of the land since its purchase on
November 12, 1962. As a matter of fact, their
purpose in filing the complaint in Civil Case No.
3285 is precisely to "get the possession of the
property."4 In order that an action may be
considered as one for forcible entry, it is not
only necessary that the plaintiff should allege
his prior physical possession of the property
but also that he was deprived of his possession
by any of the means provided in section 1, Rule
70 of the Revised Rules of Court, namely: force,
intimidation, threats, strategy and stealth. For,
if the dispossession did not take place by any
of these means, the courts of first instance, not
the municipal courts, have jurisdictions.. 5 The
bare allegation in the complaint that the
plaintiff has been "deprived" of the land of
which he is and has been the legal owner for a
long period has been held to be insufficient.6 It
is true that the mere act of a trespasser in
unlawfully entering the land, planting himself
on the ground and excluding therefrom the
prior possessor would imply the use of force. In
the case at bar, no such inference could be
made as plaintiffs-appellants had not claimed
that they were in actual physical possession of
the property prior to the entry of the
Villablancas. Moreover, it is evident that
plaintiffs-appellants are not only seeking to get
the possession of the property, but as an
alternative cause of action, they seek the return
of the price and payment of damages by the
vendors "in case of eviction or loss of
ownership" of the said property. It is, therefore,
not the summary action of forcible entry within
the context of the Rules. .
WHEREFORE, the order of dismissal is hereby
set aside, and the case remanded to the court
a quo for further proceedings. Costs against
defendants-appellees. .
POWER COMMERCIAL AND INDUSTRIAL
CORPORATION, petitioner, vs.
COURT OF APPEALS, SPOUSES
REYNALDO and ANGELITA R.
QUIAMBAO and PHILIPPINE
NATIONAL BANK, respondents.
DECISION
PANGANIBAN, J.:
Is the sellers failure to eject the lessees
from a lot that is the subject of a contract of
sale with assumption of mortgage a ground (1)
for rescission of such contract and (2) for a
return by the mortgagee of the amortization
payments made by the buyer who assumed
such mortgage?
Petitioner posits an affirmative answer to
such question in this petition for review
on certiorari of the March 27, 1995
Decision[1] of the Court of Appeals, Eighth
Division, in CA-G.R. CV Case No. 32298
upholding the validity of the contract of sale
with assumption of mortgage and absolving the
mortgagee from the liability of returning the
mortgage payments already made.[2]
The Facts
Petitioner Power Commercial & Industrial
Development Corporation, an industrial
asbestos manufacturer, needed a bigger office
space and warehouse for its products. For this
purpose, on January 31, 1979, it entered into
a contract of sale with the spouses Reynaldo
and Angelita R. Quiambao, herein private
respondents. The contract involved a 612-sq.
m. parcel of land covered by Transfer Certificate
of Title No. S-6686 located at the corner of
Bagtican and St. Paul Streets, San Antonio
Village, Makati City. The parties agreed that
petitioner would pay private
respondents P108,000.00 as down payment,
and the balance of P295,000.00 upon the
execution of the deed of transfer of the title over
the property. Further, petitioner assumed, as
part of the purchase price, the existing
mortgage on the land. In full satisfaction
thereof, he paid P79,145.77 to Respondent
Philippine National Bank (PNB for brevity).
On June 1, 1979, respondent spouses
mortgaged again said land to PNB to guarantee
a loan of P145,000.00, P80,000.00 of which
was paid to respondent spouses. Petitioner
agreed to assume payment of the loan.
On June 26, 1979, the parties executed a
Deed of Absolute Sale With Assumption of
Mortgage which contained the following terms
and conditions:[3]
That for and in consideration of the sum of Two
Hundred Ninety-Five Thousand Pesos
(P295,000.00) Philippine Currency, to us in
hand paid in cash, and which we hereby
acknowledge to be payment in full and received
to our entire satisfaction, by POWER
COMMERCIAL AND INDUSTRIAL
DEVELOPMENT CORPORATION, a 100%
Filipino Corporation, organized and existing
under and by virtue of Philippine Laws with
offices located at 252-C Vito Cruz Extension,
we hereby by these presents SELL, TRANSFER
and CONVEY by way of absolute sale the above
described property with all the improvements
existing thereon unto the said Power
Commercial and Industrial Development
Corporation, its successors and assigns, free
from all liens and encumbrances.
We hereby certify that the aforesaid property is
not subject to nor covered by the provisions of
the Land Reform Code -- the same having no
agricultural lessee and/or tenant.
We hereby also warrant that we are the lawful
and absolute owners of the above described
property, free from any lien and/or
encumbrance, and we hereby agree and
warrant to defend its title and peaceful
possession thereof in favor of the said Power
Commercial and Industrial Development
Corporation, its successors and assigns,
against any claims whatsoever of any and all
third persons; subject, however, to the
provisions hereunder provided to wit:
That the above described property is mortgaged
to the Philippine National Bank, Cubao,
Branch, Quezon City for the amount of one
hundred forty-five thousand pesos, Philippine,
evidenced by document No. 163, found on page
No. 34 of Book No. XV, Series of 1979 of Notary
Public Herita L. Altamirano registered with the
Register of Deeds of Pasig (Makati), Rizal xxx;
That the said Power Commercial and Industrial
Development Corporation assumes to pay in
full the entire amount of the said mortgage
above described plus interest and bank
charges, to the said mortgagee bank, thus
holding the herein vendor free from all claims
by the said bank;
That both parties herein agree to seek and
secure the agreement and approval of the said
Philippine National Bank to the herein sale of
this property, hereby agreeing to abide by any
and all requirements of the said bank, agreeing
that failure to do so shall give to the bank first
lieu (sic) over the herein described property.
On the same date, Mrs. C.D. Constantino,
then General Manager of petitioner-
corporation, submitted to PNB said deed with a
formal application for assumption of
mortgage.[4]
On February 15, 1980, PNB informed
respondent spouses that, for petitioners failure
to submit the papers necessary for approval
pursuant to the formers letter dated January
15, 1980, the application for assumption of
mortgage was considered withdrawn; that the
outstanding balance of P145,000.00 was
deemed fully due and demandable; and that
said loan was to be paid in full within fifteen
(15) days from notice.[5]
Petitioner paid PNB P41,880.45 on June
24, 1980 and P20,283.14 on December 23,
1980, payments which were to be applied to the
outstanding loan. On December 23, 1980, PNB
received a letter from petitioner which reads:[6]
With regard to the presence of the people who
are currently in physical occupancy of the (l)ot
xxx it is our desire as buyers and new owners
of this lot to make use of this lot for our own
purpose, which is why it is our desire and
intention that all the people who are currently
physically present and in occupation of said lot
should be removed immediately.
For this purpose we respectfully request that
xxx our assumption of mortgage be given
favorable consideration, and that the mortgage
and title be transferred to our name so that we
may undertake the necessary procedures to
make use of this lot ourselves.
It was our understanding that this lot was free
and clear of problems of this nature, and that
the previous owner would be responsible for the
removal of the people who were
there. Inasmuch as the previous owner has not
been able to keep his commitment, it will be
necessary for us to take legal possession of this
lot inorder (sic) to take physical possession.
On February 19, 1982, PNB sent petitioner
a letter as follows:[7]
(T)his refers to the loan granted to Mr. Reynaldo
Quiambao which was assumed by you on June
4, 1979 for P101,500.00. It was last renewed
on December 24, 1980 to mature on June 4,
1981.
A review of our records show that it has been
past due from last maturity with interest
arrearages amounting to P25,826.08 as of
February 19, 1982. The last payment received
by us was on December 24, 1980
for P20,283.14. In order to place your account
in current form, we request you to remit
payments to cover interest, charges, and at
least part of the principal.
On March 17, 1982, petitioner filed Civil
Case No. 45217 against respondent spouses for
rescission and damages before the Regional
Trial Court of Pasig, Branch 159. Then, in its
reply to PNBs letter of February 19,
1982, petitioner demanded the return of the
payments it made on the ground that its
assumption of mortgage was never
approved. On May 31, 1983, while this case
[8]
was pending, the mortgage was foreclosed. The
property was subsequently bought by PNB
during the public auction. Thus, an amended
complaint was filed impleading PNB as party
defendant.
On July 12, 1990, the trial court[9] ruled
that the failure of respondent spouses to deliver
actual possession to petitioner entitled the
latter to rescind the sale, and in view of such
failure and of the denial of the latters
assumption of mortgage, PNB was obliged to
return the payments made by the latter. The
dispositive portion of said decision states:[10]
IN VIEW OF ALL THE FOREGOING, the Court
hereby renders judgment in favor of plaintiff
and against defendants:
(1) Declaring the rescission of the Deed of Sale
with Assumption of Mortgage executed between
plaintiff and defendants Spouses Quiambao,
dated June 26, 1979;
(2) Ordering defendants Spouses Quiambao to
return to plaintiff the amount of P187,144.77
(P108,000.00 plus P79,145.77) with legal
interest of 12% per annum from date of filing of
herein complaint, that is, March 17, 1982 until
the same is fully paid;
(3) Ordering defendant PNB to return to
plaintiff the amount of P62,163.59 (P41,880.45
and P20,283.14) with 12% interest thereon
from date of herein judgment until the same is
fully paid.
No award of other damages and attorneys fees,
the same not being warranted under the facts
and circumstances of the case.
The counterclaim of both defendants spouses
Quiambao and PNB are dismissed for lack of
merit.
No pronouncement as to costs.
SO ORDERED.
On appeal by respondent-spouses and
PNB, Respondent Court of Appeals reversed the
trial court. In the assailed Decision, it held that
the deed of sale between respondent spouses
and petitioner did not obligate the former to
eject the lessees from the land in question as a
condition of the sale, nor was the occupation
thereof by said lessees a violation of the
warranty against eviction. Hence, there was no
substantial breach to justify the rescission of
said contract or the return of the payments
made. The dispositive portion of said Decision
reads:[11]
WHEREFORE, the Decision appealed from is
hereby REVERSED and the complaint filed by
Power Commercial and Industrial Development
Corporation against the spouses Reynaldo and
Angelita Quiambao and the Philippine National
Bank is DISMISSED. No costs.
Hence, the recourse to this Court .
Issues
Petitioner contends that: (1) there was a
substantial breach of the contract between the
parties warranting rescission; and (2) there was
a mistake in payment made by petitioner,
obligating PNB to return such payments. In its
Memorandum, it specifically assigns the
following errors of law on the part of
Respondent Court:[12]
A. Respondent Court of Appeals gravely
erred in failing to consider in its
decision that a breach of implied
warranty under Article 1547 in
relation to Article 1545 of the Civil
Code applies in the case-at-bar.
B. Respondent Court of Appeals gravely
erred in failing to consider in its
decision that a mistake in
payment giving rise to a situation
where the principle
of solutio indebiti applies is
obtaining in the case-at-bar.
The Courts Ruling
The petition is devoid of merit. It fails to
appreciate the difference between a condition
and a warranty and the consequences of such
distinction.
Conspicuous Absence of an Imposed
Condition
The alleged failure of respondent spouses
to eject the lessees from the lot in question and
to deliver actual and physical possession
thereof cannot be considered a substantial
breach of a condition for two reasons: first,
such failure was not stipulated as a condition -
- whether resolutory or suspensive -- in the
contract; and second, its effects and
consequences were not specified either.[13]
The provision adverted to by petitioner does
not impose a condition or an obligation to eject
the lessees from the lot. The deed of sale
provides in part:[14]
We hereby also warrant that we are the lawful
and absolute owners of the above described
property, free from any lien and/or
encumbrance, and we hereby agree and
warrant to defend its title and peaceful
possession thereof in favor of the said Power
Commercial and Industrial Development
Corporation, its successors and assigns,
against any claims whatsoever of any and all
third persons; subject, however, to the
provisions hereunder provided to wit:
By his own admission, Anthony Powers,
General Manager of petitioner-corporation, did
not ask the corporations lawyers to stipulate in
the contract that Respondent Reynaldo was
guaranteeing the ejectment of the occupants,
because there was already a proviso in said
deed of sale that the sellers were guaranteeing
the peaceful possession by the buyer of the
land in question.[15] Any obscurity in a contract,
if the above-quoted provision can be so
described, must be construed against the party
who caused it.[16] Petitioner itself caused the
obscurity because it omitted this alleged
condition when its lawyer drafted said contract.
If the parties intended to impose on
respondent spouses the obligation to eject the
tenants from the lot sold, it should have
included in the contract a provision similar to
that referred to in Romero vs. Court of
Appeals,[17] where the ejectment of the
occupants of the lot sold by private respondent
was the operative act which set into motion the
period of petitioners compliance with his own
obligation, i.e., to pay the balance of the
purchase price. Failure to remove the squatters
within the stipulated period gave the other
party the right to either refuse to proceed with
the agreement or to waive that condition of
ejectment in consonance with Article 1545 of
the Civil Code. In the case cited, the contract
specifically stipulated that the ejectment was a
condition to be fulfilled; otherwise, the
obligation to pay the balance would not
arise. This is not so in the case at bar.
Absent a stipulation therefor, we cannot
say that the parties intended to make its
nonfulfillment a ground for rescission. If they
did intend this, their contract should have
expressly stipulated so. In Ang vs.
C.A., rescission was sought on the ground
[18]
that the petitioners had failed to fulfill their
obligation to remove and clear the lot sold, the
performance of which would have given rise to
the payment of the consideration by private
respondent. Rescission was not allowed,
however, because the breach was not
substantial and fundamental to the fulfillment
by the petitioners of the obligation to sell.
As stated, the provision adverted to in the
contract pertains to the usual warranty against
eviction, and not to a condition that was not
met. The terms of the contract are so clear as
to leave no room for any other interpretation.[19]
Futhermore, petitioner was well aware of
the presence of the tenants at the time it
entered into the sales transaction. As testified
to by Reynaldo,[20] petitioners counsel during
the sales negotiation even undertook the job of
ejecting the squatters. In fact, petitioner
actually filed suit to eject the
occupants. Finally, petitioner in its letter to
PNB of December 23, 1980 admitted that it was
the buyer(s) and new owner(s) of this lot.
Effective Symbolic Delivery
The Court disagrees with petitioners
allegation that the respondent spouses failed to
deliver the lot sold. Petitioner asserts that the
legal fiction of symbolic delivery yielded to the
truth that, at the execution of the deed of sale,
transfer of possession of said lot was
impossible due to the presence of occupants on
the lot sold. We find this misleading.
Although most authorities consider
transfer of ownership as the primary purpose
of sale, delivery remains an indispensable
requisite as our law does not admit the doctrine
of transfer of property by mere consent.[21] The
Civil Code provides that delivery can either be
(1) actual (Article 1497) or (2) constructive
(Articles 1498-1501). Symbolic delivery (Article
1498), as a species of constructive delivery,
effects the transfer of ownership through the
execution of a public document. Its efficacy
can, however, be prevented if the vendor does
not possess control over the thing sold,[22] in
which case this legal fiction must yield to
reality.
The key word is control, not possession, of
the land as petitioner would like us to
believe. The Court has consistently held
that:[23]
x x x (I)n order that this symbolic delivery may
produce the effect of tradition, it is necessary
that the vendor shall have had
such control over the thing sold that xxx its
material delivery could have been made. It is
not enough to confer upon the purchaser
the ownership and the right of possession. The
thing sold must be placed in his control. When
there is no impediment whatever to prevent the
thing sold passing into the tenancy of the
purchaser by the sole will of the vendor,
symbolic delivery through the execution of a
public instrument is sufficient. But if,
notwithstanding the execution of the
instrument, the purchaser cannot have the
enjoyment and material tenancy of the thing
and make use of it himself or through another
in his name, because such tenancy and
enjoyment are opposed by the interposition of
another will, then fiction yields to reality -- the
delivery has not been effected.
Considering that the deed of sale between
the parties did not stipulate or infer otherwise,
delivery was effected through the execution of
said deed. The lot sold had been placed under
the control of petitioner; thus, the filing of the
ejectment suit was subsequently done. It
signified that its new owner intended to obtain
for itself and to terminate said occupants
actual possession thereof. Prior physical
delivery or possession is not legally required
and the execution of the deed of sale is deemed
equivalent to delivery.[24] This deed operates as
a formal or symbolic delivery of the property
sold and authorizes the buyer to use the
document as proof of ownership. Nothing more
is required.
Requisites of Breach of Warranty Against
Eviction
Obvious to us in the ambivalent stance of
petitioner is its failure to establish any breach
of the warranty against eviction. Despite its
protestation that its acquisition of the lot was
to enable it to set up a warehouse for its
asbestos products and that failure to deliver
actual possession thereof defeated this
purpose, still no breach of warranty against
eviction can be appreciated because the facts of
the case do not show that the requisites for
such breach have been satisfied. A breach of
this warranty requires the concurrence of the
following circumstances:
(1) The purchaser has been deprived of
the whole or part of the thing sold;
(2) This eviction is by a final judgment;
(3) The basis thereof is by virtue of a
right prior to the sale made by the
vendor; and
(4) The vendor has been summoned
and made co-defendant in the suit
for eviction at the instance of the
vendee.[25]
In the absence of these requisites, a breach of
the warranty against eviction under Article
1547 cannot be declared.
Petitioner argues in its memorandum that
it has not yet ejected the occupants of said lot,
and not that it has been evicted therefrom. As
correctly pointed out by Respondent Court, the
presence of lessees does not constitute an
encumbrance of the land,[26] nor does it deprive
petitioner of its control thereof.
 We note, however, that petitioners
deprivation of ownership and control finally
occurred when it failed and/or discontinued
paying the amortizations on the mortgage,
causing the lot to be foreclosed and sold at
public auction. But this deprivation is due to
petitioners fault, and not to any act attributable
to the vendor-spouses.
Because petitioner failed to impugn its
integrity, the contract is presumed, under the
law, to be valid and subsisting.
Absence of Mistake In Payment
Contrary to the contention of petitioner
that a return of the payments it made to PNB is
warranted under Article 2154 of the
Code, solutio indebiti does not apply in this
case. This doctrine applies where: (1) a
payment is made when there exists no binding
relation between the payor, who has no duty to
pay, and the person who received the payment,
and (2) the payment is made through mistake,
and not through liberality or some other
cause.[27]
In this case, petitioner was under
obligation to pay the amortizations on the
mortgage under the contract of sale and the
deed of real estate mortgage. Under the deed of
sale (Exh. 2),[28] both parties agreed to abide by
any and all the requirements of PNB in
connection with the real estate
mortgage. Petitioner was aware that the deed of
mortgage (Exh. C) made it solidarily and,
therefore, primarily[29] liable for the mortgage
obligation:[30]
(e) The Mortgagor shall neither lease the
mortgaged property xxx nor sell or dispose of
the same in any manner, without the written
consent of the Mortgagee. However, if not
withstanding this stipulation and during the
existence of this mortgage, the property herein
mortgaged, or any portion thereof, is xxx sold,
it shall be the obligation of the Mortgagor to
impose as a condition of the sale, alienation or
encumbrance that the vendee, or the party in
whose favor the alienation or encumbrance is
to be made, should take the property subject to
the obligation of this mortgage in the same
terms and condition under which it is
constituted, it being understood that the
Mortgagor is not in any manner relieved of his
obligation to the Mortgagee under this
mortgage by such sale, alienation or
encumbrance; on the contrary both the vendor
and the vendee, or the party in whose favor the
alienation or encumbrance is made shall be
jointly and severally liable for said mortgage
obligations. xxx.
Therefore, it cannot be said that it did not have
a duty to pay to PNB the amortization on the
mortgage.
Also, petitioner insists that its payment of
the amortization was a mistake because PNB
disapproved its assumption of mortgage after it
failed to submit the necessary papers for the
approval of such assumption.
But even if petitioner was a third party in
regard to the mortgage of the land purchased,
the payment of the loan by petitioner was a
condition clearly imposed by the contract of
sale.This fact alone disproves petitioners
insistence that there was a mistake in
payment. On the contrary, such payments
were necessary to protect its interest as a the
buyer(s) and new owner(s) of the lot.
The quasi-contract of solutio indebiti is one
of the concrete manifestations of the ancient
principle that no one shall enrich himself
unjustly at the expense of another.[31] But as
shown earlier, the payment of the mortgage was
an obligation petitioner assumed under the
contract of sale. There is no unjust enrichment
where the transaction, as in this case, is quid
pro quo, value for value.
All told, respondent Court did not commit
any reversible error which would warrant the
reversal of the assailed Decision.
 WHEREFORE, the petition is receipt (Receipt) evidencing the
hereby DENIED, and the assailed Decision transaction, signed by Valdes-Choy as seller,
is AFFIRMED. and Chua as buyer, reads:

SO ORDERED.
RECEIPT

RECEIVED from MR. TOMAS K. CHUA PBCom

TOMAS K. CHUA, petitioner, vs. COURT OF
Check No. 206011 in the amount of ONE
APPEALS and ENCARNACION
HUNDRED THOUSAND PESOS ONLY
VALDES-CHOY, respondents.
(P100,000.00) as EARNEST MONEY for the sale
of the property located at 40 Tampingco cor.
DECISION
Hidalgo, San Lorenzo Village, Makati, Metro
CARPIO, J.: Manila (Area : 718 sq. meters).

The balance of TEN MILLION SEVEN

The Case HUNDRED THOUSAND (P10,700,000.00) is
payable on or before 15[5] July 1989. Capital
Gains Tax for the account of the seller. Failure
This is a petition for review
to pay balance on or before 15 July 1989 forfeits
on certiorari seeking to reverse the decision[1] of
the earnest money. This provided that all papers
the Court of Appeals in an action for specific
are in proper order.[6]
performance[2] filed in the Regional Trial
Court[3] by petitioner Tomas K. Chua (Chua)
CONFORME: ENCARNACION VALDES
against respondent Encarnacion Valdes-Choy
(Valdes-Choy). Chua sought to compel Valdes-
Seller
Choy to consummate the sale of her
paraphernal house and lot in Makati City. The TOMAS K. CHUA
Court of Appeals reversed the
decision[4] rendered by the trial court in favor of Buyer
Chua.
x x x.[7]

The Facts In the morning of 13 July 1989, Chua

Valdes-Choy advertised for sale her
paraphernal house and lot (Property) with an
area of 718 square meters located at No. 40
Tampingco Street corner Hidalgo Street, San
Lorenzo Village, Makati City. The Property is
covered by Transfer Certificate of Title No.
162955 (TCT) issued by the Register of Deeds
of Makati City in the name of Valdes-
Choy. Chua responded to the
advertisement. After several meetings, Chua
and Valdes-Choy agreed on a purchase price
of P10,800,000.00 payable in cash.
On 30 June 1989, Valdes-Choy received
from Chua a check for P100,000.00. The
secured from Philippine Bank of Commerce
(PBCom) a managers check
for P480,000.00. Strangely, after securing the
managers check, Chua immediately gave
PBCom a verbal stop payment order claiming
that this managers check for P480,000.00 was
lost and/or misplaced.[8] On the same day, after
receipt of Chuas verbal order, PBCom Assistant
VicePresident Julie C. Pe notified in
writing[9] the PBCom Operations Group of
Chuas stop payment order.
In the afternoon of 13 July 1989, Chua and
Valdes-Choy met with their respective counsels
to execute the necessary documents and
arrange the payments.[10] Valdes-Choy as
vendor and Chua as vendee signed two Deeds
of Absolute Sale (Deeds of Sale). The first Deed
of Sale covered the house and lot for the
purchase price of P8,000,000.00.[11] The
second Deed of Sale covered the furnishings,
fixtures and movable properties contained in
the house for the purchase price
of P2,800,000.00. The parties also computed
[12]
the capital gains tax to amount
to P485,000.00.
On 14 July 1989, the parties met again at
the office of Valdes-Choys counsel. Chua
handed to Valdes-Choy the PBCom managers
check for P485,000.00 so Valdes-Choy could
pay the capital gains tax as she did not have
sufficient funds to pay the tax. Valdes-Choy
issued a receipt showing that Chua had a
remaining balance of P10,215,000.00 after
deducting the advances made by Chua. This
receipt reads:
July 14, 1989
Received from MR. TOMAS K. CHUA PBCom.
Check No. 325851 in the amount of FOUR
HUNDRED EIGHTY FIVE THOUSAND PESOS
ONLY (P485,000.00) as Partial Payment for the
sale of the property located at 40 Tampingco
Cor. Hidalgo St., San Lorenzo Village, Makati,
Metro Manila (Area 718 sq. meters), covered by
TCT No. 162955 of the Registry of Deeds of
Makati, Metro Manila.
The total purchase price of the above-
mentioned property is TEN MILLION EIGHT
HUNDRED THOUSAND PESOS only, broken
down as follows:
SELLING PRICE P10,800,000.00
EARNEST MONEY P100,000.00
PARTIAL PAYMENT 485,000.00
_________________
___585,000.00
BALANCE DUE TO
ENCARNACION VALDEZ-
CHOY P10,215,000.00
VVVVVVVVVVVV
PLUS P80,000.00 for documentary
stamps paid in advance by seller ___80,000.00
P10
,29
5,0
00.
00
x x x.[13]
On the same day, 14 July 1989, Valdes-
Choy, accompanied by Chua, deposited
the P485,000.00 managers check to her
account with Traders Royal Bank. She then
purchased a Traders Royal Bank managers
check for P480,000.00 payable to the
Commissioner of Internal Revenue for the
capital gains tax. Valdes-Choy and Chua
returned to the office of Valdes-Choys counsel
and handed the Traders Royal Bank check to
the counsel who undertook to pay the capital
gains tax. It was then also that
Chua showed to Valdes-Choy a PBCom
managers check for P10,215,000.00
representing the balance of the purchase
price. Chua, however, did not give this PBCom
managers check to Valdes-Choy because the
TCT was still registered in the name of Valdes-
Choy. Chua required that the Property be
registered first in his name before he would
turn over the check to Valdes-Choy. This
angered Valdes-Choy who tore up the Deeds of
Sale, claiming that what Chua required was not
part of their agreement.[14]
On the same day, 14 July 1989, Chua
confirmed his stop payment order by
submitting to PBCom an affidavit of loss[15] of
the PBCom Managers Check
for P480,000.00. PBCom Assistant Vice-
President Pe, however, testified that the
managers check was nevertheless honored
because Chua subsequently verbally advised
the bank that he was lifting the stop-payment
order due to his special arrangement with the
bank.[16]
On 15 July 1989, the deadline for the
payment of the balance of the purchase price,
Valdes-Choy suggested to her counsel that to
break the impasse Chua should deposit in
escrow the P10,215,000.00 balance.[17] Upon
such deposit, Valdes-Choy was willing to cause
the issuance of a new TCT in the name of Chua
even without receiving the balance of the
purchase price.Valdes-Choy believed this was
the only way she could protect herself if the
certificate of title is transferred in the name of
the buyer before she is fully paid. Valdes-Choys
counsel promised to relay her suggestion to
Chua and his counsel, but nothing came out of
it.
On 17 July 1989, Chua filed a complaint
for specific performance against Valdes-Choy
which the trial court dismissed on 22 November
1989. On 29 November 1989, Chua re-filed his
complaint for specific performance with
damages. After trial in due course, the trial
court rendered judgment in favor of Chua, the
dispositive portion of which reads:
Applying the provisions of Article 1191 of the
new Civil Code, since this is an action for
specific performance where the plaintiff, as
vendee, wants to pursue the sale, and in order
that the fears of the defendant may be allayed
and still have the sale materialize, judgment is
hereby rendered:
I. 1. Ordering the defendant to deliver to the
Court not later than five (5) days from finality
of this decision:
a. the owners duplicate copy of TCT No. 162955
registered in her name;
b. the covering tax declaration and the latest
tax receipt evidencing payment of real estate
taxes;
c. the two deeds of sale prepared by Atty. Mark
Bocobo on July 13, 1989, duly executed by
defendant in favor of the plaintiff, whether
notarized or not; and
2. Within five (5) days from compliance by the
defendant of the above, ordering the plaintiff to
deliver to the Branch Clerk of Court of this
Court the sum of P10,295,000.00 representing
the balance of the consideration (with the sum
of P80,000.00 for stamps already included);
3. Ordering the Branch Clerk of this Court or
her duly authorized representative:
a. to make representations with the BIR for the
payment of capital gains tax for the sale of the
house and lot (not to include the fixtures) and
to pay the same from the funds deposited with
her;
b. to present the deed of sale executed in favor
of the plaintiff, together with the
owners duplicate copy of TCT No. 162955, real
estate tax receipt and proof of payment of
capital gains tax, to the Makati Register of
Deeds;
c. to pay the required registration fees and
stamps (if not yet advanced by the defendant)
and if needed update the real estate taxes all to
be taken from the funds deposited with her;
and
d. surrender to the plaintiff the new Torrens
title over the property;
4. Should the defendant fail or refuse to
surrender the two deeds of sale over the
property and the fixtures that were prepared by
Atty. Mark Bocobo and executed by the parties,
the Branch Clerk of Court of this Court is
hereby authorized and empowered to prepare,
sign and execute the said deeds of sale for and
in behalf of the defendant;
5. Ordering the defendant to pay to the plaintiff;
a. the sum of P100,000.00 representing moral
and compensatory damages for the plaintiff;
and
b. the sum of P50,000.00 as reimbursement for
plaintiffs attorneys fees and cost of litigation.
6. Authorizing the Branch Clerk of Court of this
Court to release to the plaintiff, to be taken
from the funds said plaintiff has deposited with
the Court, the amounts covered at paragraph 5
above;
7. Ordering the release of the P10,295,000.00
to the defendant after deducting therefrom the
following amounts:
a. the capital gains tax paid to the BIR;
b. the expenses incurred in the registration of
the sale, updating of real estate taxes, and
transfer of title; and
c. the amounts paid under this judgment to the
plaintiff.
8. Ordering the defendant to surrender to the
plaintiff or his representatives the premises
with the furnishings intact within seventy-two
(72) hours from receipt of the proceeds of the
sale;
9. No interest is imposed on the payment to be
made by the plaintiff because he had always
been ready to pay the balance and the premises
had been used or occupied by the defendant for
the duration of this case.
II. In the event that specific
performance cannot be done for reasons or
causes not attributable to the plaintiff,
judgment is hereby rendered ordering the
defendant:
1. To refund to the plaintiff the earnest money
in the sum of P100,000.00, with interest at the
legal rate from June 30, 1989 until fully paid;
2. To refund to the plaintiff the sum
of P485,000.00 with interest at the legal rate
from July 14, 1989 until fully paid;
3. To pay to the plaintiff the sum
of P700,000.00 in the concept of moral
damages and the additional sum
of P300,000.00 in the concept of exemplary
damages; and
4. To pay to the plaintiff the sum
of P100,000.00 as reimbursement of attorneys
fees and cost of litigation.
SO ORDERED.[18]
Valdes-Choy appealed to the Court of
Appeals which reversed the decision of the trial
court. The Court of Appeals handed down a
new judgment, disposing as follows:
WHEREFORE, the decision appealed from is
hereby REVERSED and SET ASIDE, and
another one is rendered:
(1) Dismissing Civil Case No. 89-5772;
(2) Declaring the amount of P100,000.00,
representing earnest money as forfeited in
favor of defendant-appellant;
(3) Ordering defendant-appellant to
return/refund the amount of P485,000.00 to
plaintiff-appellee without interest;
(4) Dismissing defendant-appellants
compulsory counter-claim; and
(5) Ordering the plaintiff-appellee to pay the
costs.[19]
Hence, the instant petition.
The Trial Courts Ruling
The trial court found that the transaction
reached an impasse when Valdes-Choy wanted
to be first paid the full consideration before a
new TCT covering the Property is issued in the
name of Chua. On the other hand, Chua did
not want to pay the consideration in full unless
a new TCT is first issued in his name. The trial
court faulted Valdes-Choy for this impasse.
The trial court held that the parties entered
into a contract to sell on 30 June 1989, as
evidenced by the Receipt for the P100,000.00
earnest money. The trial court pointed out that
the contract to sell was subject to the following
conditions: (1) the balance
of P10,700,000.00 was payable not later than
15 July 1989; (2) Valdes-Choy may stay in the
Property until 13 August 1989; and (3) all
papers must be in proper order before full
payment is made.
The trial court held that Chua complied
with the terms of the contract to sell. Chua
showed that he was prepared to pay Valdes-
Choy the consideration in full on 13 July 1989,
two days before the deadline of 15 July
1989. Chua even added P80,000.00 for the
documentary stamp tax. He purchased from
PBCom two managers checks both payable to
Valdes-Choy. The first check for P485,000.00
was to pay the capital gains tax. The second
check for P10,215,000.00 was to pay the
balance of the purchase price. The trial court
was convinced that Chua demonstrated his
capacity and readiness to pay the balance on
13 July 1989 with the production of the PBCom
managers check for P10,215,000.00.
On the other hand, the trial court found
that Valdes-Choy did not perform her
correlative obligation under the contract to sell
to put all the papers in order. The trial court
noted that as of 14 July 1989, the capital gains
tax had not been paid because Valdes-Choys
counsel who was suppose to pay the tax did not
do so. The trial court declared that Valdes-
Choy was in a position to deliver only the
owners duplicate copy of the TCT, the signed
Deeds of Sale, the tax declarations, and the
latest realty tax receipt. The trial court
concluded that these documents were all
useless without the Bureau of Internal Revenue
receipt evidencing full payment of the capital
gains tax which is a pre-requisite to the
issuance of a new certificate of title in Chuas
name.
The trial court held that Chuas non-
payment of the balance of P10,215,000.00 on
the agreed date was due to Valdes-Choys fault.
The Court of Appeals Ruling
In reversing the trial court, the Court of
Appeals ruled that Chuas stance to pay the full
consideration only after the Property is
registered in his name was not the agreement
of the parties. The Court of Appeals noted that
there is a whale of difference between the
phrases all papers are in proper order as
written on the Receipt, and transfer of title as
demanded by Chua.
Contrary to the findings of the trial court,
the Court of Appeals found that all the papers
were in order and that Chua had no valid
reason not to pay on the agreed date. Valdes-
Choy was in a position to deliver the owners
duplicate copy of the TCT, the signed Deeds of
Sale, the tax declarations, and the latest realty
tax receipt. The Property was also free from all
liens and encumbrances.
The Court of Appeals declared that the trial
court erred in considering Chuas showing to
Valdes-Choy of the PBCom managers check
for P10,215,000.00 as compliance with Chuas
obligation to pay on or before 15 July 1989. The
Court of Appeals pointed out that Chua did not
want to give up the check unless the property
was already in his name.[20] Although Chua
demonstrated his capacity to pay, this could
not be equated with actual payment which he
refused to do.
The Court of Appeals did not consider the
non-payment of the capital gains tax as failure
by Valdes-Choy to put the papers in proper
order. The Court of Appeals explained that the
payment of the capital gains tax has no bearing
on the validity of the Deeds of Sale. It is only
after the deeds are signed and notarized
can the final computation and payment of the
capital gains tax be made.
The Issues
In his Memorandum, Chua raises the
following issues:
1. WHETHER THERE IS A
CONTRACT OF SALE OF
PROPERTY;
2. WHETHER VALDES-CHOY MAY RESCIND
THE CONTRACT IN CONTROVERSY WITHOUT
OBSERVING THE PROVISIONS OF ARTICLE
1592 OF THE NEW CIVIL CODE;
3. WHETHER THE WITHHOLDING OF
PAYMENT OF THE BALANCE OF THE
PURCHASE PRICE ON THE PART OF CHUA
(AS VENDEE) WAS JUSTIFIED BY THE
CIRCUMSTANCES OBTAINING AND MAY NOT
BE RAISED AS GROUND FOR THE
AUTOMATIC RESCISSION OF THE CONTRACT
OF SALE;
4. WHETHER THERE IS LEGAL AND FACTUAL
BASIS FOR THE COURT OF APPEALS TO
DECLARE THE EARNEST MONEY IN THE
AMOUNT OF P100,000.00 AS FORFEITED IN
FAVOR OF VALDES-CHOY;
There is no dispute that Valdes-Choy is the
absolute owner of the Property which is
registered in her name under TCT No.162955,
free from all liens and encumbrances. She was
ready, able and willing to deliver to Chua the
owners duplicate copy of the TCT, the signed
PERFECTED
Deeds of Sale, the tax declarations, and the
IMMOVABLE
latest realty tax receipt. There is also no
dispute that on 13 July 1989, Valdes-Choy
received PBCom Check No. 206011
for P100,000.00 as earnest money from
Chua. Likewise, there is no controversy that
the Receipt for the P100,000.00 earnest money
embodied the terms of the binding contract
between Valdes-Choy and Chua.
Further, there is no controversy that as
embodied in the Receipt, Valdes-Choy and
Chua agreed on the following terms: (1) the
balance of P10,215,000.00 is payable on or
before 15 July 1989; (2) the capital gains tax is
for the account of Valdes-Choy; and (3) if Chua
fails to pay the balance of P10,215,000.00 on
or before 15 July 1989, Valdes-Choy has the
right to forfeit the earnest money, provided that
all papers are in proper order. On 13 July
1989, Chua gave Valdes-Choy the PBCom
managers check for P485,000.00 to pay the
capital gains tax.

5. WHETHER THE TRIAL COURTS
JUDGMENT IS IN ACCORD WITH LAW,
REASON AND EQUITY DESERVING OF BEING
REINSTATED AND AFFIRMED.[21]
The issues for our resolution are: (a)
whether the transaction between Chua and
Valdes-Choy is a perfected contract of sale or a
mere contract to sell, and (b) whether Chua can
compel Valdes-Choy to cause the issuance of a
new TCT in Chuas name even before payment
of the full purchase price.
Both the trial and appellate courts found
that the balance of P10,215,000.00 was not
actually paid to Valdes-Choy on the agreed
date. On 13 July 1989, Chua did show to
Valdes-Choy the PBCom managers check
for P10,215,000.00, with Valdes-Choy as
payee. However, Chua refused to give this
check to Valdes-Choy until a new TCT covering
the Property is registered in Chuas name. Or,
as the trial court put it, until there is proof of
payment of the capital gains tax which is a pre-
requisite to the issuance of a new certificate of
title.

The Courts Ruling

First and Second Issues: Contract of Sale or
Contract to Sell?
The petition is bereft of merit.
 Chua has consistently characterized his to pass to the vendee until full payment of the
agreement with Valdez-Choy, as evidenced by purchase price. Otherwise stated, in a contract
the Receipt, as a contract to sell and not a of sale, the vendor loses ownership over the
contract of sale. This has been Chuas property and cannot recover it until and unless
persistent contention in his pleadings before the contract is resolved or rescinded; whereas,
the trial and appellate courts. in a contract to sell, title is retained by the
vendor until full payment of the price. In the
Chua now pleads for the first time that
latter contract, payment of the price is a
there is a perfected contract of sale rather than
positive suspensive condition, failure of which
a contract to sell. He contends that there was
is not a breach but an event that prevents the
no reservation in the contract of sale that
obligation of the vendor to convey title from
Valdes-Choy shall retain title to the Property
becoming effective.[25]
until after the sale. There was no agreement for
an automatic rescission of the contract in case
A perusal of the Receipt shows that the true
of Chuas default. He argues for the first time
agreement between the parties was a contract
that his payment of earnest money and its
to sell. Ownership over the Property was
acceptance by Valdes-Choy precludes the latter
retained by Valdes-Choy and was not to pass to
from rejecting the binding effect of the contract
Chua until full payment of the purchase price.
of sale. Thus, Chua claims that Valdes-Choy
may not validly rescind the contract of sale First, the Receipt provides that the earnest
without following Article 1592[22] of the Civil money shall be forfeited in case the buyer fails
Code which requires demand, either judicially to pay the balance of the purchase price on or
or by notarial act, before rescission may take before 15 July 1989. In such event, Valdes-
place. Choy can sell the Property to other interested
parties. There is in effect a right reserved in
Chuas new theory is not well taken in light
favor of Valdes-Choy not to push through with
of well-settled jurisprudence. An issue not
the sale upon Chuas failure to remit the
raised in the court below cannot be raised for
balance of the purchase price before the
the first time on appeal, as this is offensive to
deadline. This is in the nature of a stipulation
the basic rules of fair play, justice and due
reserving ownership in the seller until full
process.[23] In addition, when a party
payment of the purchase price. This is also
deliberately adopts a certain theory, and the
similar to giving the seller the right to rescind
case is tried and decided on that theory in the
unilaterally the contract the moment the buyer
court below, the party will not be permitted to
fails to pay within a fixed period.[26]
change his theory on appeal. To permit him to
change his theory will be unfair to the adverse Second, the agreement between Chua and
party.[24] Valdes-Choy was embodied in a receipt rather
than in a deed of sale, ownership not having
Nevertheless, in order to put to rest all
passed between them. The signing of the Deeds
doubts on the matter, we hold that the
of Sale came later when Valdes-Choy was
agreement between Chua and Valdes-Choy, as
under the impression that Chua was about to
evidenced by the Receipt, is a contract to sell
pay the balance of the purchase price. The
and not a contract of sale. The distinction
absence of a formal deed of conveyance is a
between a contract of sale and contract to sell
strong indication that the parties did not intend
is well-settled:
immediate transfer of ownership, but only a
transfer after full payment of the purchase
In a contract of sale, the title to the property
price.[27]
passes to the vendee upon the delivery of the
thing sold; in a contract to sell, ownership is, Third, Valdes-Choy retained possession of
by agreement, reserved in the vendor and is not the certificate of title and all other documents
relative to the sale. When Chua refused to pay
Valdes-Choy the balance of the purchase price,
Valdes-Choy also refused to turn-over to Chua
these documents.[28] These are additional proof
that the agreement did not transfer to Chua,
either by actual or constructive delivery,
ownership of the Property.[29]
It is true that Article 1482 of the Civil Code
provides that [W]henever earnest money is
given in a contract of sale, it shall be considered
as part of the price and proof of the perfection
of the contract. However, this article speaks of
earnest money given in a contract of sale. In
this case, the earnest money was given in a
contract to sell. The Receipt evidencing the
contract to sell stipulates that the earnest
money is a forfeitable deposit, to be forfeited if
the sale is not consummated should Chua fail
to pay the balance of the purchase price. The
earnest money forms part of the consideration
only if the sale is consummated upon full
payment of the purchase price. If there is a
contract of sale, Valdes-Choy should have the
right to compel Chua to pay the balance of the
purchase price. Chua, however, has the right to
walk away from the transaction, with no
obligation to pay the balance, although he will
forfeit the earnest money.Clearly, there is no
contract of sale. The earnest money was given
in a contract to sell, and thus Article 1482,
which speaks of a contract of sale, is not
applicable.
Since the agreement between Valdes-Choy
and Chua is a mere contract to sell, the full
payment of the purchase price partakes of a
suspensive condition. The non-fulfillment of
the condition prevents the obligation to sell
from arising and ownership is retained by the
seller without further remedies by the
buyer.[30] Article 1592 of the Civil Code permits
the buyer to pay, even after the expiration of
the period, as long as no demand for rescission
of the contract has been made upon him either
judicially or by notarial act. However, Article
1592 does not apply to a contract to sell where
the seller reserves the ownership until full
payment of the price.[31]
Third and Fourth Issues: Withholding of
Payment of the Balance
of the Purchase Price and Forfeiture of the
Earnest Money
Chua insists that he was ready to pay the
balance of the purchase price but withheld
payment because Valdes-Choy did not fulfill
her contractual obligation to put all the papers
in proper order. Specifically, Chua claims that
Valdes-Choy failed to show that the capital
gains tax had been paid after he had advanced
the money for its payment. For the same
reason, he contends that Valdes-Choy may not
forfeit the earnest money even if he did not pay
on time.
There is a variance of interpretation on the
phrase all papers are in proper order as written
in the Receipt. There is no dispute though, that
as long as the papers are in proper order,
Valdes-Choy has the right to forfeit the earnest
money if Chua fails to pay the balance before
the deadline.
The trial court interpreted the phrase to
include payment of the capital gains tax, with
the Bureau of Internal Revenue receipt as proof
of payment. The Court of Appeals held
otherwise.We quote verbatim the ruling of the
Court of Appeals on this matter:
The trial court made much fuss in connection
with the payment of the capital gains tax, of
which Section 33 of the National Internal
Revenue Code of 1977, is the governing
provision insofar as its computation is
concerned. The trial court failed to consider
Section 34-(a) of the said Code, the last
sentence of which provides, that [t]he amount
realized from the sale or other disposition of
property shall be the sum of money
received plus the fair market value of the
property (other than money) received; and that
the computation of the capital gains tax can
only be finally assessed by the Commission on
Internal Revenue upon the presentation of the
Deeds of Absolute Sale themselves, without
which any premature computation of the
capital gains tax becomes of no moment. At
any rate, the computation and payment of the
capital gains tax has no bearing insofar as the
validity and effectiveness of the deeds of sale in
question are concerned, because it is only after
the contracts of sale are finally executed in due
form and have been duly notarized that the
final computation of the capital gains tax can
follow as a matter of course. Indeed, exhibit D,
the PBC Check No. 325851, dated July 13,
1989, in the amount of P485,000.00, which is
considered as part of the consideration of the
sale, was deposited in the name of appellant,
from which she in turn, purchased the
corresponding check in the amount
representing the sum to be paid for capital
gains tax and drawn in the name of the
Commissioner of Internal Revenue, which then
allayed any fear or doubt that that amount
would not be paid to the Government after
all.[32]
We see no reason to disturb the ruling of
the Court of Appeals.
In a contract to sell, the obligation of the
seller to sell becomes demandable only upon
the happening of the suspensive condition. In
this case, the suspensive condition is the full
payment of the purchase price by Chua. Such
full payment gives rise to Chuas right to
demand the execution of the contract of sale.
It is only upon the existence of the contract
of sale that the seller becomes obligated to
transfer the ownership of the thing sold to the
buyer. Article 1458 of the Civil Code defines a
contract of sale as follows:
Art. 1458. By the contract of sale one of the
contracting parties obligates himself to
transfer the ownership of and to deliver a
determinate thing, and the other to pay
therefor a price certain in money or its
equivalent.
x x x. (Emphasis supplied)
Prior to the existence of the contract of sale,
the seller is not obligated to transfer ownership
to the buyer, even if there is a contract to sell
between them. It is also upon the existence of
the contract of sale that the buyer is obligated
to pay the purchase price to the seller. Since
the transfer of ownership is in exchange for the
purchase price, these obligations must be
simultaneously fulfilled at the time of the
execution of the contract of sale, in the absence
of a contrary stipulation.
In a contract of sale, the obligations of the
seller are specified in Article 1495 of the Civil
Code, as follows:
Art. 1495. The vendor is bound to transfer the
ownership of and deliver, as well as warrant
the thing which is the object of the
sale. (Emphasis supplied)
The obligation of the seller is to transfer to the
buyer ownership of the thing sold. In the sale
of real property, the seller is not obligated to
transfer in the name of the buyer a new
certificate of title, but rather to transfer
ownership of the real property. There is a
difference between transfer of the certificate of
title in the name of the buyer, and transfer of
ownership to the buyer.The buyer may become
the owner of the real property even if the
certificate of title is still registered in the name
of the seller. As between the seller and buyer,
ownership is transferred not by the issuance of
a new certificate of title in the name of the
buyer but by the execution of the instrument of
sale in a public document.
In a contract of sale, ownership is
transferred upon delivery of the thing sold. As
the noted civil law commentator Arturo M.
Tolentino explains it, -
Delivery is not only a necessary condition for the
enjoyment of the thing, but is a mode of
acquiring dominion and determines the
transmission of ownership, the birth of the real
right. The delivery, therefore, made in any
of the forms provided in articles 1497 to
1505 signifies that the transmission of
ownership from vendor to vendee has taken
place. The delivery of the thing constitutes an
indispensable requisite for the purpose of
acquiring ownership. Our law does not admit
the doctrine of transfer of property by mere
consent; the ownership, the property right, is
derived only from delivery of the thing. x x
x.[33] (Emphasis supplied)
In a contract of sale of real property,
delivery is effected when the instrument of sale
is executed in a public document. When the
deed of absolute sale is signed by the parties
and notarized, then delivery of the real property
is deemed made by the seller to the
buyer. Article 1498 of the Civil Code provides
that
Art. 1498. When the sale is made through a
public instrument, the execution thereof shall
be equivalent to the delivery of the thing which
is the object of the contract, if from the deed the
contrary does not appear or cannot clearly be
inferred.
x x x.
Similarly, in a contract to sell real property,
once the seller is ready, able and willing to sign
the deed of absolute sale before a notary public,
the seller is in a position to transfer ownership
of the real property to the buyer. At this point,
the seller complies with his undertaking to sell
the real property in accordance with the
contract to sell, and to assume all the
obligations of a vendor under a contract of sale
pursuant to the relevant articles of the Civil
Code. In a contract to sell, the seller is not
obligated to transfer ownership to the buyer.
Neither is the seller obligated to cause the
issuance of a new certificate of title in the name
of the buyer. However, the seller must put all
his papers in proper order to the point that he
is in a position to transfer ownership of the real
property to the buyer upon the signing of the
contract of sale.
In the instant case, Valdes-Choy was in a
position to comply with all her obligations as a
seller under the contract to sell. First, she
already signed the Deeds of Sale in the office of
her counsel in the presence of the
buyer. Second, she was prepared to turn-over
the owners duplicate of the TCT to the buyer,
along with the tax declarations and latest realty
tax receipt.Clearly, at this point Valdes-Choy
was ready, able and willing to transfer
ownership of the Property to the buyer as
required by the contract to sell, and by Articles
1458 and 1495 of the Civil Code to
consummate the contract of sale.
Chua, however, refused to give to Valdes-
Choy the PBCom managers check for the
balance of the purchase price. Chua imposed
the condition that a new TCT should first be
issued in his name, a condition that is found
neither in the law nor in the contract to sell as
evidenced by the Receipt. Thus, at this point
Chua was not ready, able and willing to pay the
full purchase price which is his obligation
under the contract to sell. Chua was also not in
a position to assume the principal obligation of
a vendee in a contract of sale, which is also to
pay the full purchase price at the agreed
time. Article 1582 of the Civil Code provides
that
Art. 1582. The vendee is bound to accept
delivery and to pay the price of the thing
sold at the time and place stipulated in the
contract.
x x x. (Emphasis supplied)
In this case, the contract to sell stipulated
that Chua should pay the balance of the
purchase price on or before 15 July 1989. The
signed Deeds of Sale also stipulated that the
buyer shall pay the balance of the purchase
price upon signing of the deeds. Thus, the
Deeds of Sale, both signed by Chua, state as
follows:
Deed of Absolute Sale covering the lot:
xxx
For and in consideration of the sum of EIGHT
MILLION PESOS (P8,000,000.00), Philippine
Currency, receipt of which in full is hereby
acknowledged by the VENDOR from the
VENDEE, the VENDOR sells, transfers and
conveys unto the VENDEE, his heirs,
successors and assigns, the said parcel of land,
together with the improvements existing
thereon, free from all liens and
encumbrances. (Emphasis supplied)
[34]
Deed of Absolute Sale covering the furnishings:
xxx
For and in consideration of the sum of TWO
MILLION EIGHT HUNDRED THOUSAND
PESOS (P2,800,000.00), Philippine
Currency, receipt of which in full is hereby
acknowledged by the VENDOR from the
VENDEE, the VENDOR sells, transfers and
conveys unto the VENDEE, his heirs,
successors and assigns, the said furnitures,
fixtures and other movable properties thereon,
free from all liens and
encumbrances.[35] (Emphasis supplied)
However, on the agreed date, Chua refused to
pay the balance of the purchase price as
required by the contract to sell, the signed
Deeds of Sale, and Article 1582 of the Civil
Code. Chua was therefore in default and has
only himself to blame for the rescission by
Valdes-Choy of the contract to sell.
Even if measured under existing usage or
custom, Valdes-Choy had all her papers in
proper order. Article 1376 of the Civil Code
provides that:
Art. 1376. The usage or custom of the place
shall be borne in mind in the interpretation of
the ambiguities of a contract, and shall fill the
omission of stipulations which are ordinarily
established.
Customarily, in the absence of a contrary
agreement, the submission by an individual
seller to the buyer of the following papers would
complete a sale of real estate: (1) owners
duplicate copy of the Torrens title;[36] (2) signed
deed of absolute sale; (3) tax declaration; and
(3) latest realty tax receipt. The buyer can
retain the amount for the capital gains tax and
pay it upon authority of the seller, or the seller
can pay the tax, depending on the agreement of
the parties.
The buyer has more interest in having the
capital gains tax paid immediately since this is
a pre-requisite to the issuance of a new Torrens
title in his name. Nevertheless, as far as the
government is concerned, the capital gains tax
remains a liability of the seller since it is a tax
on the sellers gain from the sale of the real
estate. Payment of the capital gains tax,
however, is not a pre-requisite to the
transfer of ownership to the buyer. The
transfer of ownership takes effect upon the
signing and notarization of the deed of absolute
sale.
The recording of the sale with the proper
Registry of Deeds[37] and the transfer of the
certificate of title in the name of the buyer are
necessary only to bind third parties to the
transfer of ownership.[38] As between the seller
and the buyer, the transfer of ownership takes
effect upon the execution of a public
instrument conveying the real
estate.[39] Registration of the sale with the
Registry of Deeds, or the issuance of a new
certificate of title, does not confer ownership on
the buyer. Such registration or issuance of a
new certificate of title is not one of the modes of
acquiring ownership.[40]
In this case, Valdes-Choy was ready, able
and willing to submit to Chua all the papers
that customarily would complete the sale, and
to pay as well the capital gains tax. On the
other hand, Chuas condition that a new TCT be
first issued in his name before he pays the
balance of P10,215,000.00, representing
94.58% of the purchase price, is not customary
in a sale of real estate. Such a condition, not
specified in the contract to sell as evidenced by
the Receipt, cannot be considered part of the
omissions of stipulations which are ordinarily
established by usage or custom.[41] What is
increasingly becoming customary is to deposit
in escrow the balance of the purchase price
pending the issuance of a new certificate of title
in the name of the buyer. Valdes-Choy
suggested this solution but unfortunately, it
drew no response from Chua.
since unless expressly stipulated, this is not
one of the obligations of a vendor.
WHEREFORE, the Decision of the Court of
Appeals in CA-G.R. CV No. 37652 dated 23
February 1995 is AFFIRMED in toto.
SO ORDERED.

Chua had no reason to fear being

swindled. Valdes-Choy was prepared to turn- VIVE EAGLE LAND, INC. and G.R. No.
over to him the owners duplicate copy of the 150308
TCT, the signed Deeds of Sale, the tax VIRGILIO O. CERVANTES,
declarations, and the latest realty tax Petitioners, Present:
receipt. There was no hindrance to paying the PUNO, J., Chairman,
capital gains tax as Chua himself had advanced AUSTRIA-MARTINEZ,
the money to pay the same and Valdes-Choy - versus - CALLEJO, SR.,
had procured a managers check payable to the TINGA, and
Bureau of Internal Revenue covering the COURT OF APPEALS and Promulgated:
amount. It was only a matter of time before the GENUINO ICE CO., INC.,
capital gains tax would be paid. Chua acted Respondents. November 26, 2004
precipitately in filing the action for specific
performance a mere two days after the deadline x-------------------------------
of 15 July 1989 when there was an -------------------x
impasse. While this case was dismissed on 22
November 1989, he did not waste any time in DECISION
re-filing the same on 29 November 1989.

Accordingly, since Chua refused to pay the

CALLEJO, SR., J.:
consideration in full on the agreed date, which
is a suspensive condition, Chua cannot compel
Valdes-Choy to consummate the sale of the
This is a petition filed by Vive Eagle
Property. Article 1181 of the Civil Code
Land, Inc. (VELI) and Virgilio Cervantes for the
provides that -
review of the July 19, 2001 Decision[1] and
October 4, 2001 Resolution of the Court of
ART. 1181. In conditional obligations, the
Appeals (CA) in CA-G.R. CV No. 51933.
acquisition of rights, as well as the
extinguishment or loss of those already
The Antecedents
acquired shall depend upon the happening of
the event which constitutes the condition.
The Spouses Raul and Rosalie Flores
were the owners of two parcels of land situated
Chua acquired no right to compel Valdes-Choy
along Aurora Boulevard, Cubao, Quezon City,
to transfer ownership of the Property to him
covered by
because the suspensive condition - the full
Transfer Certificates of Title (TCT) Nos. 241845
payment of the purchase price - did not
and 241846, with an area of 1,026 and 2,963
happen.There is no correlative obligation on the
square meters, respectively. On October 10,
part of Valdes-Choy to transfer ownership of
1987, the Spouses Flores and Tatic Square
the Property to Chua. There is also no
International Corporation (TATIC) executed an
obligation on the part of Valdes-Choy to cause
Agreement to Sell in which the said spouses
the issuance of a new TCT in the name of Chua
bound and obliged themselves to sell the
properties to TATIC. The latter then applied for The OWNERS warrant that
a loan with the Capital Rural Bank of Makati, the titles of the two properties are
Inc. (Bank) to finance its purchase of the said free and clear from any and all
lots. The Bank agreed to grant the application obligations and claims, whether
of TATIC in the amount of P5,757,827.63 past or present, from any bank or
provided that the torrens titles over the subject financial institution or any other
properties would be registered under the name creditor, or third persons;
of the latter as the subject lots would be used
as collateral for the payment of the said loan.[2] 7. The BROKER shall
undertake to pay any and all
On April 13, 1988, the Spouses Flores, taxes and assessments imposed
TATIC, Isidro S. Tobias (who acted as broker), and/or charged over the two (2)
and the Bank executed a Memorandum of parcels of land including the
Agreement (MOA), wherein the Spouses Flores, payment of capital gains tax and
as vendees-owners, warranted that the titles of secure tax clearance from the
the two properties were free and clear from any proper government agency/ies
and all obligations and claims, whether past or within thirty (30) days from April
present, from any creditors or third persons. 12, 1988. Official receipts of
Tobias, as broker, undertook to pay any and all payments thereof shall be
the taxes and assessments imposed and/or presented and delivered to
charged over the lots, including the payment of CAPITAL BANK;
capital gains tax; and to secure tax clearances
from the proper government agencies within The payment of any taxes and
thirty days from April 12, 1988. Tobias also assessments on the two parcels of
undertook to remove any and all land may be advanced by
tenants/occupants on the lots within sixty CAPITAL BANK provided that
days from April 12, 1988 with the assistance TATIC SQUARE will execute a
and cooperation of the Spouses Flores. The Promissory Note in favor of
parties agreed that the expenses to be incurred CAPITAL BANK in the amount
by Tobias and TATIC would be deducted from corresponding thereto. The
the purchase price of the property, which was amount covered by this
estimated at P790,000.00: Promissory Note shall be
deducted from the balance of the
6. The BROKER undertakes purchase price payable by TATIC
to clear the titles covering the two SQUARE to the OWNERS;
(2) parcels of land from any and
all liens and encumbrances, 8. The BROKER and TATIC
including future claims and/or SQUARE shall undertake to
liability from any person or entity remove any and all
within thirty (30) days from April occupants/tenants of the two (2)
12, 1988. Towards this end, the parcels of land whether legally or
OWNER shall endeavor to provide illegally residing thereat within
the BROKER the sixty (60) days from April 12,
documents/papers, which are 1988 with the assistance and
necessary and proper to carry out cooperation of the OWNERS;
this objective;
9. Any and all expenses to be
incurred in complying with the
 undertakings mentioned in TATIC SQUARE undertakes
paragraphs 6, 7 and 8 shall be to remove all the
deducted from the purchase price occupants/tenants whether
of the two parcels of land, the legally or illegally residing thereat
expenses of which is estimated to within sixty (60) days from April
be SEVEN HUNDRED NINETY 12, 1988. Otherwise, VELI shall
THOUSAND PESOS have the right and authority to
(P790,000.00). If the said amount withhold payment of the
of P790,000.00 would not be remaining balance of the
sufficient, the other expenses purchase price of the sale of the
connected therewith shall be entire project;
taken and/or deducted from the
amount due the BROKER.[3] 2. In consideration of the
execution of the Deed of Sale over
the two (2) parcels of land (Annex
On the same day, the Spouses Flores A hereof), VELI hereby absorbs
executed a deed of absolute sale over the two and assumes to pay the loan
parcels of land for the price of P5,700,000.00 in obligations of TATIC SQUARE
favor of TATIC.[4] The Spouses Flores, with CAPITAL BANK in the
thereafter, turned over the custody of the principal amount of FIVE
owners copy of their titles to the Bank.[5] MILLION SEVEN HUNDRED
FIFTY-SEVEN THOUSAND
Although the torrens titles over the lots EIGHT HUNDRED TWENTY-
were still in the custody of the Bank, TATIC, as SEVEN & 63/100
vendor, and petitioner VELI, as vendee, (P5,757,827.63) plus whatever
executed a deed of absolute sale[6] on April 14, interests and other charges that
1988, in which TATIC sold the properties to the may be imposed thereon by
petitioner for P6,295,224.88, receipt of which CAPITAL BANK including the
was acknowledged in the said deed by TATIC. release of the mortgage
The latter warranted in the said deed that there constituted over the property
were valid titles to the property and that it upon full payment of the loan;
would deliver possession thereof to the
petitioner. The parties executed a deed entitled 3. TATIC SQUARE, likewise,
Addendum in which they agreed on the represents and warrants that it is
following: the absolute owner of the entire
project known as TATIC WALK-
1. TATIC SQUARE represents UP CONDOMINIUM including its
and warrants that the titles accessories and appurtenance
covering the two (2) parcels of thereto;
land are free from any and all
liens and encumbrances except
the mortgage which may be
subsisting in favor of CAPITAL 4. In accordance with the
BANK. TATIC SQUARE shall Deed of Sale of the entire project
cause the registration and (Annex B hereof), VELI shall
transfer of the titles covering the promptly pay on its due date
two (2) parcels of land in its name; TATIC SQUARE, the remaining
balance of the purchase price in
 the amount of P400,000.00
subject to adjustment set forth in
the next preceding paragraph.[7]
On November 11, 1988, VELI, as vendor,
through its president, petitioner Virgilio
Cervantes, and respondent Genuino Ice Co.,
Inc., as vendee, executed a deed of absolute
sale[8] over the parcel of land covered by TCT
No. 241846 for the price of P4,000,000.00,
receipt of which was acknowledged by
petitioner VELI. On the same day, the
respondent and petitioner VELI executed a
deed of assignment of rights in which the latter
assigned in favor of the respondent, for and in
consideration of P4,000,000.00, all its rights
and interests under the Deed of Absolute Sale
executed on April 13, 1988 by the Spouses
Flores and the deed of absolute sale executed
by TATIC in its favor, insofar as that lot covered
by TCT No. 241846 only was concerned.[9]
company in order to protect the
interest of our client.[10]
In a letter to the respondent, petitioner
VELI, through counsel, rejected the formers
demand.[11]
On June 24, 1990, the respondent filed
a Complaint against petitioner VELI and its
president, Virgilio Cervantes, for specific
performance and damages in the Regional Trial
Court (RTC) of Quezon City. The respondent
alleged, inter alia, that petitioner VELI failed (a)
to transfer title to and in the name of the
respondent over the property covered by TCT
No. 241846 despite the lapse of a reasonable
time; (b) to cause the eviction/removal of the
squatters/occupants on the property; and (c) to
pay the capital gains tax and other
assessments due to effectuate the transfer of
the titles of the property to and in its name. The
respondent prayed that, after due proceedings,
judgment be rendered in its favor, thus:

In the meantime, the respondent, WHEREFORE, premises

through counsel, wrote petitioner VELI and considered, it is most respectfully
made the following demands: prayed that, after trial, judgment
be rendered against defendants
In view of the foregoing to, jointly and severally,
facts, demand is hereby made indemnify plaintiff as follows:
upon you to pay to the BIR the
capital gains tax amounting
to P285,000.00 and deliver to us
the receipt and/or clearance I. FIRST CAUSE OF
thereof, plus the interests for all ACTION
registration fees on account of
delay in the payment of the a) To effect or
capital gains tax and the 1% cause the transfer of
documentary stamp tax for the title in favor of the
sale of the property from your plaintiff;
company to our client or to give b) To pay the
them a BIR clearance regarding capital gains tax
payment of all said taxes within and other
five (5) days from receipt hereof; requirements or
otherwise, much to our regret, we expenses necessary
will be constrained to file legal to effect said
action for specific performance transfer.
and damages against your
 II. SECOND CAUSE OF petitioner VELI was exempt from the payment
ACTION of capital gains tax; (b) the Spouses Flores and
Tobias were liable for the payment of capital
a) To direct gains tax; and (c) the Spouses Flores and
defendants to cause Tobias were responsible for the eviction of the
the removal or occupants/squatters from the property.
eviction of the
squatters or The trial court rendered judgment,
unlawful occupants amended per its Order dated April 17, 1995, in
for (sic) the area; favor of the respondent. The fallo of the
b) In the decision, as amended, reads:
alternative, if
eviction is not WHEREFORE, foregoing
accomplished to considered, judgment is hereby
forfeit the amount rendered in favor of plaintiff
of P300,000 in favor ordering defendants to cause the
of plaintiff. transfer of the title to the plaintiff.
The payment of the capital gains
III. THIRD CAUSE OF tax shall be paid by the
ACTION defendants. Further, defendants
are hereby ordered to remove or
a) To pay actual evict or cause the removal or
damages in the eviction of the squatters or
amount of no less unlawful occupants of the area,
than FIVE otherwise, the amount
HUNDRED of P300,000.00 shall be deemed
THOUSAND forfeited in favor of plaintiff; to
PESOS; pay attorneys fees of P20,000.00
b) To pay and to pay the costs.
exemplary damages
in the amount of SO ORDERED.[14]
FIVE HUNDRED
THOUSAND The trial court held that the petitioners
PESOS; were liable for the payment of the capital gains
c) Attorneys fees tax, and that the respondent was not privy to
in the amount the deeds of absolute sale executed by the
of P250,000; Spouses Flores and TATIC, and TATIC and
d) Costs of petitioner VELI, and as such is not bound by
suits. the said deeds; neither could the respondent
enforce the same against the Spouses Flores,
Plaintiff further prays for TATIC and petitioner VELI.
such relief or reliefs as may be
just and equitable under the In due course, the petitioners appealed
premises.[12] to the CA which rendered judgment, on July
19, 2001, affirming, with modification, the
In their answer[13] to the complaint, the appealed decision. The CA held that the
petitioners alleged that the respondent had no petitioners were liable for the expenses for the
cause of action against them because (a) registration of the sale. It also ruled that the
respondent was not bound by the deed of
absolute sale executed by TATIC and the
petitioners because it was not a party thereto,
and that the latter were obliged to cause the
eviction of the squatters from the property.[15]
The petitioners, in the instant petition
for review, raise the following issues for
resolution: (a) whether or not petitioner VELI is
obliged to pay for the expenses for transfer of
the property and the issuance of the titles to
and under the name of the respondent; (b)
whether or not the petitioners are liable for the
capital gains tax for the sale between petitioner
VELI and the respondent; and (c) whether or
not the petitioners are obliged to evict the
remaining squatters from the land.
Petitioner VELI is Obliged to Cause
the Registration of the November 11,
1988 Deed of Absolute Sale in Favor
of Respondent, the Issuance of a
Torrens Title in the Name of
Respondent and the Eviction of the
Tenants/Occupants from the Property
at the Expense of the Petitioner.
The petitioners assail the ruling of the
CA that, under Article 1487 of the New Civil
Code, petitioner VELI, as vendor, is liable for
the expenses for the registration of the third
deed of sale in favor of the respondent, as
vendee, and to secure a torrens title over the
property to and under the name of the latter.
The petitioners contend that, under the MOA
executed by the Spouses Flores, Tobias (the
broker), the Bank and TATIC, the April 14,
1988 agreement and the first deed of sale
executed by the Spouses Flores and Tobias, the
latter obliged themselves to spend for the
registration of the said deed of absolute sale
and for the issuance of torrens titles over the
properties in the name of the vendees; and
further obliged themselves to cause the eviction
of the tenants/occupants from the property
within sixty days from April 12, 1988. The
petitioners, likewise, emphasize that, under the
April 14, 1988 agreement of the petitioners and
TATIC, the latter obliged itself to cause and
spend for the registration of the second deed of
sale between petitioner VELI and TATIC, and
the issuance of the titles over the property in
favor of petitioner VELI; and to cause the
eviction of the tenants/occupants from the
property within sixty days from April 12, 1988.
Also, under the deed of assignment of rights
executed by petitioner VELI and the
respondent, the latter acquired the rights and
interests of petitioner VELI under the deeds of
sale executed by the Spouses Flores in favor of
TATIC, and by TATIC in favor of petitioner VELI.
The petitioners aver that, under the deed
of sale they executed in favor of the respondent,
as well as the acts of the parties before,
contemporaneous with and subsequent to the
execution of the said deed, they cannot be held
liable for the expenses for the registration of the
third deed of sale, the transfer of titles to and
under the name of the respondent, for payment
of the capital gains tax and the eviction of the
tenants/occupants on the property. Such acts
include the execution of the following: the
addendum to the said deed of sale; the deed of
assignment of rights executed by petitioner
VELI in favor of the respondent; and the deeds
executed by the Spouses Flores, TATIC and
Tobias.
The petitioners contend that the CA
erred in ruling that the respondent is not
bound by the deeds executed by the Spouses
Flores, TATIC and Tobias, and by TATIC and
petitioner VELI simply because the respondent
was not a party to the said deeds. The
petitioners insist that the respondent acquired
the rights and interests of its predecessors;
and, being the vendee/owner of the property
covered by TCT No. 241846, the petitioners had
the right to enforce the said contracts against
its predecessors.
We are not in full accord with the
petitioners. It bears stressing that there are
three separate deeds of absolute sale on record,
to wit: first, the April 13, 1988 deed of absolute
sale executed by the Spouses Flores and TATIC;
second, the April 14, 1988 deed of absolute sale
executed by TATIC in favor of petitioner VELI;
and third, the November 11, 1988 deed of
absolute sale between petitioner VELI, as
vendor, and the respondent, as vendee, over
the property covered by TCT No. 241846. Under
the April 13, 1988 MOA executed by the
Spouses Flores, Tobias, TATIC and the Bank,
the Spouses Flores and Tobias obliged
themselves to spend for and cause the
registration of the first deed of absolute sale, to
cause the issuance of the torrens titles over the
property to and under the name of TATIC, as
vendee, and to pay the capital gains tax on the
said sales. Tobias and TATIC bound and
obliged themselves to cause the eviction of the
tenants/occupants on the property within sixty
days from April 12, 1988, with the assistance
of the Spouses Flores. On the other hand,
under the April 14, 1988 agreement of TATIC
and petitioner VELI, TATIC obliged itself to
spend for the registration of the second deed of
absolute sale and the issuance of the titles over
the property to and under the name of
petitioner VELI, and to cause the eviction of the
tenants/occupants from the property within
sixty days from April 12, 1988. TATIC did not
bind itself to pay the capital gains tax for the
said sale.
Indeed, under the third deed of absolute
sale, petitioner VELI did not oblige itself to
spend for the registration of the said deed; to
secure a torrens title over the property to and
under the name of the respondent; or to cause
the eviction of the tenants/occupants on the
property. Nevertheless, petitioner VELI is liable
for the said expenses because, under Article
1487[16] of the New Civil Code, the expenses for
the registration of the sale should be
shouldered by the vendor unless there is a
stipulation to the contrary. In the absence of
any stipulation of the parties relating to the
expenses for the registration of the sale and the
transfer of the title to the vendee, Article 1487
shall be applied in a supplementary manner.[17]
Under Article 1495[18] of the New Civil
Code, petitioner VELI, as the vendor, is obliged
to transfer title over the property and deliver
the same to the vendee. While Article 1498[19] of
the New Civil Code provides that the execution
of a notarized deed of absolute sale shall be
equivalent to the delivery of the property
subject of the contract, the same shall not
apply if, from the deed, the contrary does not
appear or cannot clearly be inferred. In the
present case, the respondent and petitioner
VELI agreed that the latter would cause the
eviction of the tenants/occupants and deliver
possession of the property. It is clear that at the
time the petitioner executed the deed of sale in
favor of the respondent, there were
tenants/occupants in the property. It cannot,
thus, be concluded that, through the execution
of the third deed of sale, the property was
thereby delivered to the respondent.
Petitioner VELI is obliged to cause the
eviction of the tenants/occupants unless there
is a contrary agreement of the parties. Indeed,
under the addendum executed by petitioner
VELI and the respondent, the latter was given
the right to withhold P300,000.00 of the
purchase price until after petitioner VELI
cleared the property of squatters.
While it is true that the respondent
acquired the rights and interests of TATIC
under the first deed of sale and that of
petitioner VELI under the second deed of sale
by virtue of the deed of assignment of rights
executed by the petitioners and the respondent,
the latter cannot enforce the terms and
conditions of the said deeds. It must be
stressed that there is no showing in the records
that the Spouses Flores, Tobias and TATIC
conformed to the said deed of assignment of
rights or that the same was registered in the
office of the Register of Deeds in accordance
with Article 1625[20] of the New Civil Code.
Moreover, the execution, by petitioner
VELI and the respondent, of such deed of
assignment of rights did not relieve the said
petitioner of its obligation to clear the property
of tenants/occupants. This is because the
following agreement was embodied in their
addendum:
NOW THEREFORE, for
and in consideration of the
foregoing premises, the
Transferee hereby retains and
holds from the Transferor the
amount of Three Hundred
Thousand & 00/100 Pesos
(P300,000.00), from the purchase
price due the Transferor until
after the premises have been rid
of and cleared from squatters
occupying therein.
That after the said parcel
of land has been cleared of
squatters, the Transferee shall
immediately remit to the
Transferor the aforesaid sum of
Three Hundred Thousand &
00/100 Pesos (P300,000.00)
without need of further act or
deed.[21]
Petitioner VELI is Not Liable
for Payment of the Capital
Gains Tax for the Third Sale
We agree with the petitioners contention
that petitioner VELI is not liable for the
payment of capital gains tax for the third deed
of sale. A capital gains tax is a final tax
assessed on the presumed gain derived by
citizens and resident aliens, as well as estates
and trusts, from the sale or exchange of real
property.[22] Under the first sale, per the
agreement of the Spouses Flores, TATIC, and
Tobias, the said spouses were obliged to pay the
capital gains tax. However, under the deed of
absolute sale for the second sale, TATIC was
not obliged to pay the said tax. The Court notes
that in answer to the respondents demand
letter, petitioner VELI claimed that such tax
could not be assessed against it or against
TATIC for the reason that they are corporations
and, therefore, exempt from the payment of
capital gains tax for any sale or exchange or
disposition of property.
It is settled that only laws existing at the
time of the execution of a contract are
applicable thereto and not later statutes,
unless the latter are specifically intended to
have retroactive effect.[23] When the first and
second deeds of absolute sale took place in
1988, the 1977 National Internal Revenue Code
(NIRC), as amended by Batas Pambansa Blg.
37 and
Executive Order No. 237 was still in effect.
Under Sections 21(e)[24] and 34(h)[25] of the
1977 NIRC, as amended, the Spouses Flores,
as vendors, were liable for the payment of
capital gains tax. In the second sale, however,
TATIC was not similarly liable because while
Article 1487 of the Civil Code provides that the
seller is obliged to pay the capital gains tax
based on its obligation to transfer title over the
property to the vendee under Sections 21(e) and
34(h) of the 1977 NIRC, the payment of capital
gains tax from the sale, exchange of disposition
of real property devolved only upon individual
taxpayers. In fact, the Bureau of Internal
Revenue (BIR), in response to the queries of
several corporations which had sold,
exchanged or disposed of their real properties,
more particularly in BIR Ruling Nos. 159
(September
13, 1985), 127 (July 12, 1983), 191 (November
15, 1983), 195 (November 15, 1983), 60 (May
12, 1986), 177 (September 17, 1986), and 415-
87 (December 23, 1987), definitely ruled that
the corporations were exempt from the
payment of capital gains tax. Their income from
the sale or exchange or disposition of real
property was treated as ordinary income, and
was taxed as such. One of the opinions of the
BIR Commissioner reads:
Ruling No. 159
September 13, 1985

Gentlemen:
In reply to your letter dated
September 11, 1985, I have the
honor to inform you that Revenue
Regulations No. 8-79
implementing Section 34(h) of the
Tax Code, as amended by Batas
Pambansa Blg. 37 is explicit that
only natural persons or
individuals are liable to the final
capital gains tax prescribed
therein. Such being the case, the
gains derived by your client, the
Religious of the Virgin Mary from
the sale of its real property in
Balanga, Bataan, is not subject to
the final capital gains tax
prescribed by Section 34(h) of the
Tax Code, as amended by Batas
Pambansa Blg. 37 but to the
ordinary corporate income tax
prescribed under Section 24(a) of
the same Code, as amended.
Very truly yours,
(Sgd.)
RUBEN B. ANCHETA
Acting Commissioner
This is the reason why, in the second
sale, neither TATIC nor petitioner VELI paid
any capital gains tax. Similarly, in the third
sale, i.e., between petitioner VELI and the
respondent, petitioner VELI, being a provisions of Section 43(b), the
corporation, was not obliged to pay the capital
gains tax. However, petitioner VELI, as seller,
should have included in its ordinary income tax
return, whatever gain or loss it incurred with
respect to the sale of the property in dispute,
pursuant to Section 24(a)[26] of the 1977 NIRC,
as amended.
We do not agree with the ruling of the CA that,
under Section 24(d) of the 1997 NIRC,
previously Section 34(h) of the 1977 NIRC,
petitioner VELI is obliged to pay capital gains
tax for its sale of the property to the
respondent. Section 34(h) of the 1977 NIRC, as
amended by B.P. Blg. 37 reads as follows:
(h) The provision of
paragraph (b) of this Section to
the contrary notwithstanding, net
capital gains from the sale or
other disposition of real property
by citizens of the Philippines or
resident alien individuals shall
be subject to the final income tax
rates prescribed as follows:
NET CAPITAL GAINS RATES
On the first P100,000 or less 10%
On any amount over P100,000
20%
Such tax shall be in lieu of
the tax imposed under Section 21
of this Code; Provided,
however, That the tax liability, if
any, on gains from sales or other
dispositions of real property to
the government or any of its
political subdivisions or agencies
or to government-owned and
controlled corporations shall be
determined either under Section
21 hereof or under this Section, at
the option of the
taxpayer; Provided, further, That
if the taxpayer elects to report
such gains in accordance with the
amount of the tax which shall be
paid on each installment shall be
the proportion of the tax herein
imposed, which the installment
payment received bears to the
total selling price; Provided,
finally, That failure on the part of
the seller to pay tax imposed
herein on any gains returnable
under the installment method will
automatically disqualify the
seller-taxpayer from paying the
 tax in installments and the
unpaid portion of the tax shall
immediately be due and
demandable. The tax herein
imposed shall be returned and
paid in accordance with Sections
45(c)[27] and 51(a)(4) of this Code.
No registration of any document
transferring real property shall be
effected by Register of Deeds
unless the Commissioner or his
duly authorized representative
has certified that such transfer
has been reported and the tax
herein imposed, if any, has been
paid; in case of deferred-payment
sales of real property where the
vendor retains title to the
property, the vendee shall furnish
the Commissioner with a copy of
the instrument of sale within the
same period prescribed for
payment of the tax herein
imposed.
Section 24(D) of the 1997 NIRC, which
refers to the capital gains from sale of real
property, is found in the Title Chapter III Tax
on Individuals, and is herein quoted:
(D) Capital Gains from Sale
of Real Property.
(1) In General. The
provisions of Section 39(B)
notwithstanding, a final tax of six
percent (6%) based on the gross
selling price or current fair
market value as determined in
accordance with Section 6(E) of
this Code, whichever is higher, is
hereby imposed upon capital
gains presumed to have been
realized from the sale, exchange,
or other disposition of real
property located in the
Philippines, classified as capital
assets, including pacto de
retro sales and other forms of
conditional sales,
by individuals, including
estates and trusts: Provided,
That the tax liability, if any, on
gains from sales or other
disposition of real property to the
government or any of its political
subdivisions or agencies or to
government-owned or controlled
corporations shall be determined
either under Section 24(A)or
under this Subsection, at the
option of the taxpayer.
As pointed out earlier, the sale between
petitioner VELI and the respondent occurred in
November 11, 1988. At that point in time, it
was the 1977 NIRC as amended, which was in
effect. Hence, the applicable law is Section
34(h). Section 24(d) of the 1997 NIRC, which
requires corporations to pay capital gains tax
at rates provided for in Chapter IV, Section 27
thereof, cannot be applied retroactively.[28] The
latter provision reads:
CHAPTER IV TAX ON
CORPORATIONS
Section 27. Rates of
Income Tax on Domestic
Corporations.
(D) Rates of Tax on Certain
Passive Incomes.
(5) Capital Gains Realized
from the Sale, Exchange or
Disposition of Lands and/or
Buildings. A final tax of six
percent (6%) is hereby imposed
on the gain presumed to have
been realized on the sale,
exchange or disposition of lands
and/or buildings which are not
actually used in the business of a
corporation and are treated as
 capital assets, based on the gross
selling price or fair market value
as determined in accordance with
Section 6(E) of this Code,
whichever is higher, of such lands
and/or buildings.

The gains that a corporation earned in

the sale, exchange or disposition of the real
properties it made should be included in the
Corporations return, pursuant to Sections
24(a) and 45 of the 1977 NIRC, as amended.[29]

IN LIGHT OF ALL THE FOREGOING,

the petition is PARTIALLY GRANTED. The
decision of the Court of Appeals in CA-G.R. CV
No. 51933 is herebyAFFIRMED WITH
MODIFICATION. That portion of the Decision
of the Court of Appeals mandating petitioner
Vive Eagle Land, Inc. to pay capital gains tax
for the November 11, 1988 sale of the property
covered by TCT No. 241846 to respondent
Genuino Ice Co., Inc. is DELETED. No costs.

SO ORDERED.