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SAN LORENZO vs.

COURT OF APPEALS, BABASANTA, SPOUSES LU


FACTS
Respondent Sps. Lu owned 2 parcels of land in Sta. Rosa, Laguna covered by TCT 39022 and TCT 39023, both measuring 15,808
SQM or a total of 3.1616 hectares.

On Aug. 20, 1986, Sps. Lu sold the 2 parcels of land to respondent Babasanta for the price of P15/SQM. Babasanta made a
downpayment of P50,000 as evidenced by a memorandum receipt. Several other payments totalling to P200,000 were made.

In May 1989, Babasanta wrote to Pacita Lu to demand the execution of a final deed of sale in his favor so that he could pay the full
purchase price. In the same letter, Babasanta notified the Sps. Lu about having received info that they sold the same to another without
his knowledge and consent. He demanded that the second sale be cancelled.

In response, Pacita Lu wrote to Babasanta where she acknowledged having agreed to sell the property to him at P15/SQM. She,
however, reminded Babasanta that he requested for a reduction in the price and that when she refused, Babasanta backed out of the
sale. Pacita added that she returned the P50,000 to Babasanta through Eugenio Oya.

On June 2, 1989, Babasanta filed before the RTC San Pedro a Complaint for Specific Performance and Damages against Sps. Lu. He
alleged that the 2 parcels of land had been sold to him and despite his demands for the execution of a final deed of sale, Sps. Lu
allegedly refused.

In their answer, Sps. Lu alleged that Pacita Lu obtained loans from Babasanta and when the total reached P50,000, Pacita and
Babasanta, without the knowledge and consent of Miguel Lu, verbally agreed to transform the transaction into a contract to sell the 2
parcels of land to Babasanta with the P50,000 considered as downpayment and the balance to be paid before Dec. 31, 1987.

Sps. Lu added that as of Nov. 1987, total payments made by Babasanta amounted to only P200,000 and that he failed to pay 260,000
despite repeated demands. Babasanta had purportedly asked Pacita for a reduction of the price from P15 to P12 per SQM and when
Sps. Lu refused to grant the reduction, Babasanta rescinded the contract to sell and declared that the original loan transaction just be
carried out in that Sps. Lu would be indebted to him for P200,000. Accordingly, on July 6, 1989, Sps. Lu purchased an Interbank
Managers Check for P200,000 in the name of Babasanta to show that they were able and willing to pay the balance.

Babasanta later filed an amended complaint praying for a writ of preliminary injunction (WPI) with TRO and the inclusion of the Register
of Deeds of Calamba as defendant. The WPI was allegedly sought to restrain the conveyance by Sps. Lu of the property to other
persons.

Sps. Lu filed their opposition contending that the amended complaint raised new matters. However, the RTC admitted the amended
complaint.

On Jan. 19, 1990, petitioner San Lorenzo Development Corporation (SLDC) filed a Motion for Intervention before the RTC. LDC alleged
that it had legal interest because on May 3, 1989, the 2 parcels of land (Lot 1764-A and Lot 1764-B) had been sold to it in a deed of
absolute sale with mortgage. SLDC alleged that it was a buyer in good faith and for value and therefore it had a better right over the
property.

Babasanta filed an opposition to SLDCs motion on the ground that the 2 parcels of land had already been conveyed to him and
therefore, Sps. Lu were without legal capacity to transfer the 2 parcels of land to the intervener.

The RTC allowed SLDC to intervene. Babasantas motion for WPI was likewise granted conditioned upon hi filing of a bond worth
P50,000.

SLDC in its complaint-in-intervention alleged that on Feb. 11, 1989, Sps. Lu executed in its favor an option to buy the lots. Accordingly,
it paid an option money of P316,160 out of the total consideration price of P1.2M. After Sps. Lu received a total of P632,320, they
executed on May 3, 1989 a deed of absolute sale with mortgage in its favor. SLDC added that the TCTs were delivered to it by the Sps.
Lu clean and free from any adverse claims or notice of lis pendens. Claiming that it was a buyer in good faith, SLDC argued that it had
no obligation to look beyond the titles submitted by the Sps. Lu particularly because Babasantas claims were not annotated o n it at the
time of the sale to SLDC.

RTC: Upheld the sale to SLDC and ordered the Register of Deeds Calamba to cancel the notice of lis pendens in the TCTs.

Applying NCC 1544, the RTC ruled that since both Babasanta and SLDC did not register the sales in their favor, ownership should
pertain to the buyer who first acquired possession of the property. The RTC equated the execution of a public instrument in favor of
SLDC as sufficient delivery. It concluded that symbolic possession could be considered to have been first transferred to SLDC and
consequently ownership pertained to SLDC who purchased in good faith.

CA: Reversed the RTCs decision. It declared the sale between Sps. Lu and Babasanta to be valid and subsisting and ordered
Sps. Lu to executed the necessary deed of conveyance and the Babasanta to pay P260,000.
The CA ruled that the deed of absolute sale with mortgage in favor of SLDC was null and void on the ground that SLDC was a buyer in
bad faith.

ISSUE Who between SLDC and Babasanta has a better right over the 2 parcels of land in view of the successive transactions
executed by Sps. Lu SLDC
RATIO
The agreement between Babasanta and Sps. Lu is a contract to sell and not a contract of sale. While there is no stipulation that Sps. Lu
reserves the ownership of the property until full payment of the price, the subsequent acts of Sps. Lu shows that they never intended to
transfer ownership except upon full payment of the price.
In the letters, Babasanta stated that despite his repeated demands for the execution of the final deed of sale in his favor so
that he could pay the full price, Pacita Lu allegedly refused to do so. In effect, Babasanta himself recognized that ownership of the
property would be transferred to him until he paid the full price. More so, had the Sps. Lu intended to transfer title, they could have
easily executed the document of sale in its required simultaneously with their acceptance of the partial payment.

In a contract of sale, title passes to the vendee upon delivery of the thing sold; whereas in a contract to sell, by agreement the
ownership is reserved in the vendor and is not passed until full payment of the price. In a contract of sale, the vendor has lost and
cannot recover ownership unless the contract is resolved or rescinded; whereas in a contract to sell, the title is retained by the seller
until full payment of the price, such payment being a positive suspensive condition and failure of which is not a breach but an event that
prevents the obligation to convey title from being effective.

Here, Babasanta should have tendered and consigned payment in court as required by law. Mere sending of a letter expressing the
intention to pay without accompanying payment is not a valid tender of payment. This is essential to extinguish his obligation to pay the
balance of the price. Without this, the obligation on the part of Sps. Lu to convey title never acquired any obligatory force.
The essential elements of a contract of sale are (1) consent or meeting of the minds; (2) object certain which is the subject
matter; (3) cause of the obligation.

Perfection of a contract of sale should not be confused with its consummation In relation to acquisition or transfer of ownership, sale is
not a mode, but merely a title. A mode is the legal means by which ownership is created transferred or destroyed, but title is only the
legal basis to which to affect ownership. Under NCC 712, ownership and real rights over property are acquired and transmitted by law,
by donation, by succession, and in consequence of certain contracts, by tradition. Contracts only constitute titles while delivery or
tradition is the mode of accomplishing the same. Therefore, sale by itself does not transfer ownership; the most that sale does is to
create the obligation to transfer ownership.

NCC 1497-1501 provides for ways of delivery. There are 2 modes of delivery: (1) actual; and (2) constructive delivery.

Actual delivery consists in placing the thing sold in the control and possession of the vendee. Constructive delivery may be had through
any of the following ways: (1) the execution of a public instrument; (2) symbolical tradition such as the delivery of the keys to where the
movable is kept; (3) traditio longa manu or by mere agreement if the movable cannot yet be transferred; (4) traditio brevi manu if the
buyer already had possession of the object; (5) and traditio constitutum possessorium where the seller remains in possession of the
property in a different capacity.

Following above, Babasanta did not acquire ownership by the mere execution of the receipt acknowledging partial payment for the
property. The agreement was not embodied in a public instrument. Hence, no constructive delivery could have been effected.

There was no actual or constructive delivery to Babasanta. Thus, even if the contract was a sale, ownership did not transfer.
NCC 1544 governs the juridical relationship between parties in a double sale. The principle of primus tempore, potior jure (first in time,
stronger in right) gains greater significance in case of double sale of immovable property. When the thing sold twice is an immovable,
the one who acquires it and first records it in the Registry of Property, both made in good faith, shall be the owner.
Here, SLDC registered the sale with the Registry of Deeds after it had acquired knowledge of Babasantas claim. Babasanta
argued that the registration was attended by bad faith such that there was already a notice of lis pendens at the time.

However, the SC ruled that the registration of the sale after the annotation of lis pendens did not obliterate the effects of delivery and
possession in good faith which occurred prior to SLDCs knowledge of the transaction to Babasanta.

Here, from the time of execution of the first deed up to the moment of transfer and delivery of possession to SLDC, it acted in good faith
and the subsequent annotation of lis pendens has not effect at all on the consummated sale between Sps. Lu and SLDC.

SLDC qualifies as a purchaser in good faith since there is no evidence that it had knowledge of the prior transaction with Babasanta. At
the time, Sps. Lu were still the registered owners of the lands. It has been held that a person dealing with the owners of registered
lands is not bound to go beyond the TCT.
Babasantas reliance on PD 1529, Sec. 52 (Constructive notice upon registration) will not succeed. Here, constructive notice
operated from the time of the registration of the lis pendens at which time the sale in favor of SLDC had long been consummated.

Assuming that SLDCs registration had been tainted by the prior notice of lis pendens and that this is a case of double sale, still
Babasantas claim could not prevail over SLDC. Applying Abarquez vs. CA, SLDC would prevail on the basis of its prior possession of
the property in good faith. Be it noted that delivery to SLDC was immediately after the execution of the deed in its favor, at which time
SLDC had no knowledge of the prior transaction with Babasanta.

The law speaks of 3 criterions: (1) Priority of entry in the registry of property; there being no priority of such entry, (2) priority of
possession; in the absence of the two priorities, (3) priority is of the date of title, with good faith as common critical element. Since
SLDC acquired possession in good faith in contrast to Babasanta, who neither registered nor possessed the property at the time,
SLDCs right is superior.
Note that the discussion on double sale was purely academic as the contract with Babasanta was a mere contract to sell.
DISPOSITIVE CA decision is REVERSED and SET ASIDE RTC decision is REINSTATED

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