Sales - August 20, 2015

Sales Obligations of the Seller (Consummation) p.
1
G.R. No. 133895
October 2, 2001
ZENAIDA M. SANTOS, petitioner,

vs.
CALIXTO SANTOS, ALBERTO SANTOS, ROSA SANTOS-CARREON and
ANTONIO SANTOS, respondents.
QUISUMBING, J.:
This petition for review1 seeks to annul and set aside the decision date 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 receive rentals form the apartment units.1wphi1.nt
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 Salvador's heir, demanded the rent
from Antonio Hombrebueno,2 a tenant of Rosalia. When the latter refused to
pay, Zenaida filed and ejectment suit against him with the Metropolitan Trial
Court of Manila, Branch 24, which eventually decided in Zenaida's favor.
generation funds for his business and providing him with greater business
flexibility.
In her Answer, Zenaida denied the material allegations in the complaint 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 state 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 stimulated 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 stimulated 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.
On January 5, 1989, private respondents 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
Without pronouncement as to costs.

SO OREDERED.3
Sales Obligations of the Seller (Consummation) p. 2

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 owner's 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 court's 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 Salvador's 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
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 PETITIONER'S 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 Man's Statute?" 8
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 DEFENDANTAPPELLANT WAS AFFECTED BY HIS FAILURE TO EXERCISE
CERTAIN ATTRIBUTES OF OWNERSHIP.
On the first issue, petitioner contends that the Court of Appeals erred in
holding that despite the deeds of sale in Salvador's 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 share over the
property was executed by Rosa, Salvador still sought she 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 buyer's immediate
possession and occupation of the property corroborated the truthfulness and
authenticity of the deed of sale. Conversely, the vendor's 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
147715 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 respondent 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 complainant's rights, the complainant having had knowledge or
notice of the defendant's 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 petitioner's 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 unreasonble 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 Man's Statute." 19It
is too late for petitioner, however, to invoke said rule. The trial court in its
order dated February 5, 1990, denied petitioner's 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 crossexamined by petitioner's counsel. By her failure to appeal from the order
allowing Rosa to testify, she waived her right to invoke the dean man's
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 man's statute is effectively waived when
a counsel for a petitioner cross-examines a private respondent on matters
occurring during the deceased's lifetime. The Court of appeals cannot be
faulted in ignoring petitioner on Rosa's disqualification.1wphi1.nt
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.
Zosa & Quijano Law Offices for petitioner.
Expedito P. Bugarin for respondent GELAC Trading, Inc.
GUTIERREZ, JR., J.:p
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.
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.
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.
C.
xxx xxx xxx
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 CORESPONDENT 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.
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. 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.
Thos. D. Aitken for appellant.
Modesto Reyes and Eliseo Ymzon for 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 nonfulfillment 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 theright 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.

G.R. No. L-69970 November 28, 1988
FELIX
DANGUILAN, petitioner,
vs.
INTERMEDIATE APPELLATE COURT, APOLONIA MELAD, assisted by
her husband, JOSE TAGACAY,respondents.
Pedro R. Perez, Jr. for petitioner.
Teodoro B. Mallonga for private respondent.
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.)
2.
(SGD.)
3. (T.M.) ILLEGIBLE
ISIDRO
FELIX
MELAD
DANGUILAN
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.)
(SGD.) DANIEL ARAO
ILLEGIBLE
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, 15which 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. 17 The averment was also
made that the contract was simulated and prepared after Domingo Melad's
death in 1945. 18 It 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.

G.R. No. L-21998 November 10, 1975
CALIXTO PASAGUI and FAUSTA MOSAR, plaintiffs-appellants,
vs.
ESTER T. VILLABLANCA, ZOSIMO VILLABLANCA, EUSTAQUIA BOCAR
and CATALINA BOCARdefendants-appellees.
Julio Siayngco for plaintiffs-appellants.
Filomeno Arteche, Jr. for 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 abovedescribed 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 defendantsappellees 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. .

G.R. No. 119745 June 20, 1997
POWER COMMERCIAL AND INDUSTRIAL CORPORATION, petitioner,
vs.
COURT OF APPEALS, SPOUSES REYNALDO and ANGELITA R.
QUIAMBAO and PHILIPPINE NATIONAL BANK, respondents.
PANGANIBAN, J.:
Is the seller's 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 . . . ;
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
petitioner's failure to submit the papers necessary for approval pursuant to
the former's 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 . . . 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 . . . 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 PNB's 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, 8 while
this case 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 latter's 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.
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.
No award of other damages and attorney's fees, the same

not being warranted under the facts and circumstances of
the case.
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 counterclaim of both defendants spouses Quiambao

and PNB are dismissed for lack of merit.
No pronouncement as to costs.
The Court's 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.
SO ORDERED.
Conspicuous Absence of an Imposed Condition
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
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 petitionercorporation, did not ask the corporation's 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, 17where
the ejectment of the occupants of the lot sold by private respondent was the
operative act which set into motion the period of petitioner's 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., 18 rescission was sought
on the ground 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
Furthermore, 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 petitioner's 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 petitioner's 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
. . . (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 . . . 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 petitioner's 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 petitioner's 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. . . 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 . . . 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. . . .
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 petitioner's
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 hereby DENIED, and the assailed Decision is
AFFIRMED.
SO ORDERED.

G.R. No. 119255
April 9, 2003
TOMAS K. CHUA, petitioner,

vs.
COURT OF APPEALS and ENCARNACION VALDES-CHOY, respondents.
CARPIO, J.:
located at 40 Tampingco cor. Hidalgo, San Lorenzo Village, Makati,

Metro Manila (Area : 718 sq. meters).
The balance of TEN MILLION SEVEN 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 to pay balance on or
before 15 July 1989 forfeits the earnest money. This provided that all
papers are in proper order.6
The Case
This is a petition for review on certiorari seeking to reverse the decision1 of
the Court of Appeals in an action for specific performance 2 filed in the
Regional Trial Court3 by petitioner Tomas K. Chua ("Chua") against
respondent Encarnacion Valdes-Choy ("Valdes-Choy"). Chua sought to
compel Valdes-Choy to consummate the sale of her paraphernal house and
lot in Makati City. The Court of Appeals reversed the decision 4 rendered by
the trial court in favor of Chua.
The Facts
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 receipt ("Receipt") evidencing the transaction, signed by
Valdes-Choy as seller, and Chua as buyer, reads:
30 June 1989
RECEIPT
RECEIVED from MR. TOMAS K. CHUA PBCom Check No. 206011
in the amount of ONE HUNDRED THOUSAND PESOS ONLY
(P100,000.00) as EARNEST MONEY for the sale of the property
CONFORME:
ENCARNACION VALDES
Seller
TOMAS K. CHUA
Buyer
x x x.7
In the morning of 13 July 1989, Chua secured from Philippine Bank of
Commerce ("PBCom") a manager's check for P480,000.00. Strangely, after
securing the manager's check, Chua immediately gave PBCom a verbal stop
payment order claiming that this manager's check for P480,000.00 "was lost
and/or misplaced."8 On the same day, after receipt of Chua's verbal order,
PBCom Assistant VicePresident Julie C. Pe notified in writing9 the PBCom
Operations Group of Chua's 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. 12 The parties also computed
the capital gains tax to amount to P485,000.00.

On 14 July 1989, the parties met again at the office of Valdes-Choy's
counsel. Chua handed to Valdes-Choy the PBCom manager's 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:
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-Choy's 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:
SELLING PRICE
P10,800,000.00
x x x.13
On the same day, 14 July 1989, Valdes-Choy, accompanied by Chua,
deposited the P485,000.00 manager's check to her account with Traders
Royal Bank. She then purchased a Traders Royal Bank manager's 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-Choy's
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 manager's check for P10,215,000.00 representing
the balance of the purchase price. Chua, however, did not give this PBCom
manager's 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 Manager's Check
for P480,000.00. PBCom Assistant Vice-President Pe, however, testified that
the manager's check was nevertheless honored because Chua subsequently
EARNEST MONEY
P100,000.00
PARTIAL PAYMENT
485,000.00
585,000.00
BALANCE
DUE
ENCARNACION VALDEZ-CHOY
TO
PLUS P80,000.00 for documentary stamps

paid in advance by seller
P10,215,000.00
80,000.00
P10,295,000.00

estate taxes all to be taken from the funds deposited with
her; and
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 owner's duplicate copy of TCT No. 162955 registered
in her name;
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;
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. 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 plaintiff's
attorney's 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;
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. the expenses incurred in the registration of the sale,

updating of real estate taxes, and transfer of title; and
b. to present the deed of sale executed in favor of the

plaintiff, together with the owner's duplicate copy of TCT No.
162955, real estate tax receipt and proof of payment of
capital gains tax, to the Makati Register of Deeds;
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;
c. to pay the required registration fees and stamps (if not yet
advanced by the defendant) and if needed update the real
c. the amounts paid under this judgment to the plaintiff.

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
attorney's 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-appellant's compulsory counterclaim; and
(5) Ordering the plaintiff-appellee to pay the costs. 19

Hence, the instant petition.
The Trial Court's Ruling
The trial court found that the transaction reached an impasse when ValdesChoy 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 manager's 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 manager's
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-Choy's 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 owner's 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 Chua's
name.

The trial court held that Chua's non-payment of the balance of
P10,215,000.00 on the agreed date was due to Valdes-Choy's fault.
The Court of Appeals' Ruling
In reversing the trial court, the Court of Appeals ruled that Chua's 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 owner's 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 Chua's
showing to Valdes-Choy of the PBCom manager's check for P10,215,000.00
as compliance with Chua's 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.
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;
5. WHETHER THE TRIAL COURT'S 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 Chua's name even before payment of the full purchase price.
The Court's Ruling
The petition is bereft of merit.
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
owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax
declarations, and the 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.
The Issues
In his Memorandum, Chua raises the following issues:
1. WHETHER THERE IS A PERFECTED CONTRACT OF SALE OF
IMMOVABLE PROPERTY;
2. WHETHER VALDES-CHOY MAY RESCIND THE CONTRACT IN
CONTROVERSY WITHOUT OBSERVING THE PROVISIONS OF
ARTICLE 1592 OF THE NEW CIVIL CODE;
Further, there is no controversy that as embodied in the Receipt, ValdesChoy 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 manager's check for
P485,000.00 to pay the capital gains tax.

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 manager's
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 Chua's 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.
First and Second Issues: Contract of Sale or Contract to Sell?
Chua has consistently characterized his agreement with Valdez-Choy, as
evidenced by the Receipt, as a contract to sell and not a contract of sale.
This has been Chua's persistent contention in his pleadings before the trial
and appellate courts.
Chua now pleads for the first time that there is a perfected contract of sale
rather than a contract to sell. He contends that there was no reservation in
the contract of sale that Valdes-Choy shall retain title to the Property until
after the sale. There was no agreement for an automatic rescission of the
contract in case of Chua's default. He argues for the first time that his
payment of earnest money and its acceptance by Valdes-Choy precludes the
latter from rejecting the binding effect of the contract of sale. Thus, Chua
claims that Valdes-Choy may not validly rescind the contract of sale without
following Article 159222 of the Civil Code which requires demand, either
judicially or by notarial act, before rescission may take place.
Chua's new theory is not well taken in light of well-settled jurisprudence. An
issue not raised in the court below cannot be raised for the first time on
appeal, as this is offensive to the basic rules of fair play, justice and due
process.23 In addition, when a party deliberately adopts a certain theory, and
the case is tried and decided on that theory in the court below, the party will
not be permitted to change his theory on appeal. To permit him to change his
theory will be unfair to the adverse party.24
Nevertheless, in order to put to rest all doubts on the matter, we hold that the
agreement between Chua and Valdes-Choy, as evidenced by the Receipt, is
a contract to sell and not a contract of sale. The distinction between a
contract of sale and contract to sell is well-settled:
In a contract of sale, the title to the property passes to the vendee
upon the delivery of the thing sold; in a contract to sell, ownership is,
by agreement, reserved in the vendor and is not to pass to the
vendee until full payment of the purchase price. Otherwise stated, in

a contract of sale, the vendor loses ownership over the property and
cannot recover it until and unless the contract is resolved or
rescinded; whereas, in a contract to sell, title is retained by the
vendor until full payment of the price. In the latter contract, payment
of the price is a positive suspensive condition, failure of which is not
a breach but an event that prevents the obligation of the vendor to
convey title from becoming effective.25
A perusal of the Receipt shows that the true agreement between the parties
was a contract to sell. Ownership over the Property was retained by ValdesChoy and was not to pass to Chua until full payment of the purchase price.
First, the Receipt provides that the earnest money shall be forfeited in case
the buyer fails to pay the balance of the purchase price on or before 15 July
1989. In such event, Valdes-Choy can sell the Property to other interested
parties. There is in effect a right reserved in favor of Valdes-Choy not to push
through with the sale upon Chua's failure to remit the balance of the
purchase price before the deadline. This is in the nature of a stipulation
reserving ownership in the seller until full payment of the purchase price. This
is also similar to giving the seller the right to rescind unilaterally the contract
the moment the buyer fails to pay within a fixed period. 26
Second, the agreement between Chua and Valdes-Choy was embodied in a
receipt rather than in a deed of sale, ownership not having passed between
them. The signing of the Deeds of Sale came later when Valdes-Choy was
under the impression that Chua was about to pay the balance of the
purchase price. The absence of a formal deed of conveyance is a strong
indication that the parties did not intend immediate transfer of ownership, but
only a transfer after full payment of the purchase price. 27
Third, Valdes-Choy retained possession of 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
Balance of the Purchase Price and Forfeiture of the Earnest Money
the
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 Chua's 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 ownershipof 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 owner's 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 manager's 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
only himself to blame for the rescission by Valdes-Choy of the contract to

sell.
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.
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:
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. 34 (Emphasis
supplied)
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
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) owner's 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 seller's 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, Chua's 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.
Chua had no reason to fear being swindled. Valdes-Choy was prepared to
turn-over to him the owner's duplicate copy of the TCT, the signed Deeds of
Sale, the tax declarations, and the latest realty tax receipt. There was no
hindrance to paying the capital gains tax as Chua himself had advanced the
money to pay the same and Valdes-Choy had procured a manager's check
payable to the Bureau of Internal Revenue covering the amount. It was only
a matter of time before the capital gains tax would be paid. Chua acted
precipitately in filing the action for specific performance a mere two days after
the deadline of 15 July 1989 when there was an impasse. While this case
was dismissed on 22 November 1989, he did not waste any time in re-filing
the same on 29 November 1989.
Accordingly, since Chua refused to pay the consideration in full on the
agreed date, which is a suspensive condition, Chua cannot compel ValdesChoy to consummate the sale of the Property. Article 1181 of the Civil Code
provides that ART. 1181. In conditional obligations, the acquisition of rights, as well
as the extinguishment or loss of those already acquired shall depend
upon the happening of the event which constitutes the condition.
Chua acquired no right to compel Valdes-Choy to transfer ownership of the
Property to him because the suspensive condition - the full payment of the
purchase price - did not happen. There is no correlative obligation on the part
of Valdes-Choy to transfer ownership of the Property to Chua. There is also
no obligation on the part of Valdes-Choy to cause the issuance of a new TCT
in the name of 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.

The Spouses Raul and Rosalie Flores were the owners of two parcels of land
situated along Aurora Boulevard, Cubao, Quezon City, covered by
Transfer Certificates of Title (TCT) Nos. 241845 and 241846, with an area of
1,026 and 2,963 square meters, respectively. On October 10, 1987, the
Spouses Flores and Tatic Square International Corporation (TATIC) executed
an Agreement to Sell in which the said spouses bound and obliged
themselves to sell the properties to TATIC. The latter then applied for a loan
with the Capital Rural Bank of Makati, Inc. (Bank) to finance its purchase of
the said lots. The Bank agreed to grant the application of TATIC in the
amount of P5,757,827.63 provided that the torrens titles over the subject
properties would be registered under the name of the latter as the subject
lots would be used as collateral for the payment of the said loan. 2
G.R. No. 150308
November 26, 2004
VIVE EAGLE LAND, INC. and VIRGILIO O. CERVANTES, petitioners,

vs.
COURT OF APPEALS and GENUINO ICE CO., INC., respondents.
DECISION
CALLEJO, SR., J.:
This is a petition filed by Vive Eagle Land, Inc. (VELI) and Virgilio Cervantes
for the review of the July 19, 2001 Decision 1 and October 4, 2001 Resolution
of the Court of Appeals (CA) in CA-G.R. CV No. 51933.
The Antecedents
On April 13, 1988, the Spouses Flores, TATIC, Isidro S. Tobias (who acted as
broker), and the Bank executed a Memorandum of Agreement (MOA),
wherein the Spouses Flores, as vendees-owners, warranted that "the titles of
the two properties were free and clear from any and all obligations and
claims, whether past or present, from any creditors or third persons." Tobias,
as broker, undertook to pay any and all the taxes and assessments imposed
and/or charged over the lots, including the payment of capital gains tax; and
to secure tax clearances from the proper government agencies within thirty
days from April 12, 1988. Tobias also undertook to remove any and all
tenants/occupants on the lots within sixty days from April 12, 1988 with the
assistance and cooperation of the Spouses Flores. The parties agreed that
the expenses to be incurred by Tobias and TATIC would be deducted from
the purchase price of the property, which was estimated at P790,000.00:
6. The BROKER undertakes to clear the titles covering the two (2)
parcels of land from any and all liens and encumbrances, including
future claims and/or liability from any person or entity within thirty
(30) days from April 12, 1988. Towards this end, the OWNER shall
endeavor to provide the BROKER the documents/papers, which are
necessary and proper to carry out this objective;
The OWNERS warrant that the titles of the two properties are free
and clear from any and all obligations and claims, whether past or
present, from any bank or financial institution or any other creditor, or
third persons;
7. The BROKER shall undertake to pay any and all taxes and
assessments imposed and/or charged over the two (2) parcels of
land including the payment of capital gains tax and secure tax

clearance from the proper government agency/ies within thirty (30)
days from April 12, 1988. Official receipts of payments thereof shall
be presented and delivered to CAPITAL BANK;
The payment of any taxes and assessments on the two parcels of
land may be advanced by CAPITAL BANK provided that TATIC
SQUARE will execute a Promissory Note in favor of CAPITAL BANK
in the amount corresponding thereto. The amount covered by this
Promissory Note shall be deducted from the balance of the purchase
price payable by TATIC SQUARE to the OWNERS;
8. The BROKER and TATIC SQUARE shall undertake to remove any
and all occupants/tenants of the two (2) parcels of land whether
legally or illegally residing thereat within sixty (60) days from April 12,
1988 with the assistance and cooperation of the OWNERS;
9. Any and all expenses to be incurred in complying with the
undertakings mentioned in paragraphs 6, 7 and 8 shall be deducted
from the purchase price of the two parcels of land, the expenses of
which is estimated to be SEVEN HUNDRED NINETY THOUSAND
PESOS (P790,000.00). If the said amount of P790,000.00 would not
be sufficient, the other expenses connected therewith shall be taken
and/or deducted from the amount due the BROKER.3
On the same day, the Spouses Flores executed a deed of absolute sale over
the two parcels of land for the price of P5,700,000.00 in favor of TATIC. 4 The
Spouses Flores, thereafter, turned over the custody of the owner's copy of
their titles to the Bank.5
Although the torrens titles over the lots were still in the custody of the Bank,
TATIC, as vendor, and petitioner VELI, as vendee, executed a deed of
absolute sale6 on April 14, 1988, in which TATIC sold the properties to the
petitioner for P6,295,224.88, receipt of which was acknowledged in the said
deed by TATIC. The latter warranted in the said deed that there were valid
titles to the property and that it would deliver possession thereof to the
petitioner. The parties executed a deed entitled "Addendum" in which they
agreed on the following:
1. TATIC SQUARE represents and warrants that the titles covering
the two (2) parcels of land are free from any and all liens and
encumbrances except the mortgage which may be subsisting in
favor of CAPITAL BANK. TATIC SQUARE shall cause the
registration and transfer of the titles covering the two (2) parcels of
land in its name;
TATIC SQUARE undertakes to remove all the occupants/tenants
whether legally or illegally residing thereat within sixty (60) days from
April 12, 1988. Otherwise, VELI shall have the right and authority to
withhold payment of the remaining balance of the purchase price of
the sale of the entire project;
2. In consideration of the execution of the Deed of Sale over the two
(2) parcels of land (Annex "A" hereof), VELI hereby absorbs and
assumes to pay the loan obligations of TATIC SQUARE with
CAPITAL BANK in the principal amount of FIVE MILLION SEVEN
HUNDRED FIFTY-SEVEN THOUSAND EIGHT HUNDRED
TWENTY-SEVEN & 63/100 (P5,757,827.63) plus whatever interests
and other charges that may be imposed thereon by CAPITAL BANK
including the release of the mortgage constituted over the property
upon full payment of the loan;
3. TATIC SQUARE, likewise, represents and warrants that it is the
absolute owner of the entire project known as TATIC WALK-UP
CONDOMINIUM including its accessories and appurtenance thereto;
4. In accordance with the Deed of Sale of the entire project (Annex
"B" hereof), VELI shall promptly pay on its due date 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
In the meantime, the respondent, through counsel, wrote petitioner VELI and
made the following demands:

In view of the foregoing facts, demand is hereby made 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 thereof, plus the interests
for all registration fees on account of delay in the payment of the
capital gains tax and the 1% documentary stamp tax for the sale of
the property from your company to our client or to give them a BIR
clearance regarding payment of all said taxes within five (5) days
from receipt hereof; otherwise, much to our regret, we will be
constrained to file legal action for specific performance and damages
against your company in order to protect the interest of our client. 10
In a letter to the respondent, petitioner VELI, through counsel, rejected the
former's 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:
WHEREFORE, premises considered, it is most respectfully prayed
that, after trial, judgment be rendered against defendants to, jointly
and severally, indemnify plaintiff as follows:
b) In the alternative, if eviction is not accomplished to forfeit

the amount of P300,000 in favor of plaintiff.
III. THIRD CAUSE OF ACTION
a) To pay actual damages in the amount of no less than
FIVE HUNDRED THOUSAND PESOS;
b) To pay exemplary damages in the amount of FIVE
HUNDRED THOUSAND PESOS;
c) Attorney's fees in the amount of P250,000;
d) Costs of suits.
Plaintiff further prays for such relief or reliefs as may be just and
equitable under the premises.12
In their answer13 to the complaint, the petitioners alleged that the respondent
had no cause of action against them because (a) petitioner VELI was exempt
from the payment of capital gains tax; (b) the Spouses Flores and Tobias
were liable for the payment of capital gains tax; and (c) the Spouses Flores
and Tobias were responsible for the eviction of the occupants/squatters from
the property.
The trial court rendered judgment, amended per its Order dated April 17,
1995, in favor of the respondent. The fallo of the decision, as amended,
reads:
I. FIRST CAUSE OF ACTION

a) To effect or cause the transfer of title in favor of the
plaintiff;
b) To pay the capital gains tax and other requirements or
expenses necessary to effect said transfer.
II. SECOND CAUSE OF ACTION
a) To direct defendants to cause the removal or eviction of
the squatters or unlawful occupants for (sic) the area;
WHEREFORE, foregoing considered, judgment is hereby rendered

in favor of plaintiff ordering defendants to cause the transfer of the
title to the plaintiff. The payment of the capital gains tax shall be paid
by the defendants. Further, defendants are hereby ordered to
remove or evict or cause the removal or eviction of the squatters or
unlawful occupants of the area, otherwise, the amount of
P300,000.00 shall be deemed forfeited in favor of plaintiff; to pay
attorney's fees of P20,000.00 and to pay the costs.
SO ORDERED.14
The trial court held that the petitioners were liable for the payment of the
capital gains tax, and that the respondent was not privy to the deeds of

absolute sale executed by the Spouses Flores and TATIC, and TATIC and
petitioner VELI, and as such is not bound by the said deeds; neither could
the respondent enforce the same against the Spouses Flores, TATIC and
petitioner VELI.
In due course, the petitioners appealed to the CA which rendered judgment,
on July 19, 2001, affirming, with modification, the appealed decision. The CA
held that the petitioners were liable for the expenses for the 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 149518 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 149819 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
Payment of the Capital Gains Tax for the Third Sale
Liable
for
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
respondent's 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
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 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.
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:
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:
Ruling
September 13, 1985
No.
159
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.
Acting Commissioner
ANCHETA
(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 provisions of Section 43(b), 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 Corporation's 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 hereby
AFFIRMED 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.

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Sales Obligations of the Seller (Consummation) p.

ZENAIDA M. SANTOS, petitioner,

On January 5, 1989, private respondents instituted an action for

Without pronouncement as to costs.

Sales Obligations of the Seller (Consummation) p. 2

Sales Obligations of the Seller (Consummation) p. 3

Sales Obligations of the Seller (Consummation) p. 4

Sales Obligations of the Seller (Consummation) p. 5

Sales Obligations of the Seller (Consummation) p. 6

In the case of Servicewide Specialists Inc. v. Intermediate Appellate Court.

Sales Obligations of the Seller (Consummation) p. 7

Sales Obligations of the Seller (Consummation) p. 8

Sales Obligations of the Seller (Consummation) p. 9

Sales Obligations of the Seller (Consummation) p. 10

Sales Obligations of the Seller (Consummation) p. 11

Sales Obligations of the Seller (Consummation) p. 12

Sales Obligations of the Seller (Consummation) p. 13

EXHIBIT 3-a is quoted as follows: 13

(SGD.) DOMINGO MELAD

Sales Obligations of the Seller (Consummation) p. 14

As was held in Garchitorena v. Almeda: 21

Sales Obligations of the Seller (Consummation) p. 15

Sales Obligations of the Seller (Consummation) p. 16

in the complaint, there is no allegation that the deprivation of possession was

Sales Obligations of the Seller (Consummation) p. 17

Sales Obligations of the Seller (Consummation) p. 18

That for and in consideration of the sum of Two Hundred

Sales Obligations of the Seller (Consummation) p. 19

On February 19, 1982, PNB sent petitioner a letter as follows: 7

Sales Obligations of the Seller (Consummation) p. 20

A. Respondent Court of Appeals gravely erred in failing to

No award of other damages and attorney's fees, the same

B. Respondent Court of Appeals gravely erred in failing to

The counterclaim of both defendants spouses Quiambao

The Court's Ruling

Sales Obligations of the Seller (Consummation) p. 21

Effective Symbolic Delivery

Sales Obligations of the Seller (Consummation) p. 22

Because petitioner failed to impugn its integrity, the contract is presumed,

Sales Obligations of the Seller (Consummation) p. 23

Sales Obligations of the Seller (Consummation) p. 24

TOMAS K. CHUA, petitioner,

located at 40 Tampingco cor. Hidalgo, San Lorenzo Village, Makati,

Sales Obligations of the Seller (Consummation) p. 25

July 14, 1989

Received from MR. TOMAS K. CHUA PBCom. Check No. 325851 in

PLUS P80,000.00 for documentary stamps

Sales Obligations of the Seller (Consummation) p. 26

d. surrender to the plaintiff the new Torrens title over the

b. the covering tax declaration and the latest tax receipt

a. the sum of P100,000.00 representing moral and

a. to make representations with the BIR for the payment of

b. the expenses incurred in the registration of the sale,

b. to present the deed of sale executed in favor of the

8. Ordering the defendant to surrender to the plaintiff or his

c. the amounts paid under this judgment to the plaintiff.

Sales Obligations of the Seller (Consummation) p. 27

(5) Ordering the plaintiff-appellee to pay the costs. 19

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3. WHETHER THE WITHHOLDING OF PAYMENT OF THE

Sales Obligations of the Seller (Consummation) p. 29

vendee until full payment of the purchase price. Otherwise stated, in

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Sales Obligations of the Seller (Consummation) p. 31