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SECOND DIVISION

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 review 1 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.1âwphi1.nêt

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.

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 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.

Without pronouncement as to costs.

SO OREDERED. 3

The trial court reasoned that notwithstanding the deeds of sale transferring the property to Salvador, the spouses Rosalia and Jesus continued to possess the property and to exercise rights of ownership not only by receiving the monthly rentals, but also by paying the realty taxes. Also, Rosalia kept the 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

Hence, this petition where petitioner avers that the Court of Appeals erred in:

I.

 

HOLDING THAT THE OWNERSHIP OVER THE LITIGATED PROPERTY BY THE

LATE HUSBAND OF DEFENDANT-APPELLANT WAS AFFECTED BY HIS FAILURE TO EXERCISE CERTAIN ATTRIBUTES OF OWNERSHIP.

II.

 

…HOLDING THAT DUE EXECUTION OF A PUBLIC INSTRUMENT IS NOT EQUIVALENT TO DELIVERY OF THE LAND IN DISPUTE.

III.

 

…NOT FINDING THAT THE CAUSE OF ACTION OF ROSALIA SANTOS HAD PRESCRIBED AND/OR BARRED BY LACHES.

IV.

 

IGNORING 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

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 ½ 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 1477 15 of the Civil Code which provides that ownership of the thing sold is transferred to the vendee upon its actual or constructive delivery. Article 1498, in turn, provides that when the sale is made through a public instrument, its execution is equivalent to the delivery of the thing subject of the contract. Petitioner avers that applying said provisions to the case, Salvador became the owner of the subject property by virtue of the two deeds of sale executed in his favor.

Nowhere in the Civil Code, however, does it provide that execution of a deed of sale is a conclusive presumption of delivery of possession. The Code merely said that the execution shall be equivalent to delivery. The presumption can be rebutted by clear and convincing evidence. 16 Presumptive delivery can be negated by the failure of the vendee to take actual possession of the land sold. 17

In Danguilan vs. IAC, 168 SCRA 22, 32 (1988), we held that for the execution of a public instrument to effect tradition, the purchaser must be placed in control of the thing sold. When there is no impediment to prevent the thing sold from converting to tenancy of the purchaser by the sole will of the vendor, symbolic delivery through the execution of a public instrument is sufficient. But if, notwithstanding the execution of the instrument, the purchaser cannot have the enjoyment and

material tenancy nor make use of it himself or through another in his name, then delivery has not been effected.

As found by both the trial and appellate courts and amply supported by the evidence on record, Salvador was never placed in control of the property. The original sellers retained their control and possession. Therefore, there was no real transfer of ownership.

Moreover, in Norkis Distributors, Inc. vs. CA, 193 SCRA 694, 698-699 (1991), citing the land case

of Abuan vs. Garcia, 14 SCRA 759 (1965), we held that the critical factor in the different modes of

effecting delivery, which gives legal effect to the act is the actual intention of the vendor to deliver, and its acceptance by the vendee. Without that intention, there is no tradition. In the instant case, although the spouses Jesus and Rosalia executed a deed of sale, they did not deliver the

possession and ownership of the property to Salvador and Rosa. They agreed to execute a deed of sale merely to accommodate Salvador to enable him to generate funds for his business venture.

On the third issue, petitioner argues that from the date of the sale from Rosa to Salvador on November 20, 1973, up to his death on January 9, 1985, more or less twelve years had lapsed, and from his death up to the filing of the case for reconveyance in the court a quo on January 5, 1989, four years had lapsed. In other words, it took respondents about sixteen years to file the case below. Petitioner argues that an action to annul a contract for lack of consideration prescribes in ten years and even assuming that the cause of action has not prescribed, respondents are guilty of laches for their inaction for a long period of time.

Has respondents' cause of action prescribed? In Lacsamana vs. CA, 288 SCRA 287, 292 (1998), we held that the right to file an action for reconveyance on the ground that the certificate of title was obtained by means of a fictitious deed of sale is virtually an action for the declaration of its nullity, which does not prescribe. This applies squarely to the present case. The complaint filed by 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." 19 It 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 cross-examined 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 Goñi 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.1âwphi1.nêt

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.

Bellosillo, Mendoza, Buena, De Leon, Jr., JJ., concur.

Republic of the Philippines SUPREME COURT Manila

THIRD DIVISION

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.:

This is a petition for review on certiorari seeking the reversal of the March 23, 1990 decision of the Court of Appeals which ruled that the petitioner's purchase of a farm tractor was not validly consummated and ordered a complaint for its recovery dismissed.

The facts as established by the records are as follows:

The petitioner, Perfecto Dy and Wilfredo Dy are brothers. Sometime in 1979, Wilfredo Dy purchased a truck and a farm tractor through financing extended by Libra Finance and Investment Corporation (Libra). Both truck and tractor were mortgaged to Libra as security for the loan.

The petitioner wanted to buy the tractor from his brother so on August 20, 1979, he wrote a letter to Libra requesting that he be allowed to purchase from Wilfredo Dy the said tractor and assume the mortgage debt of the latter.

In a letter dated August 27, 1979, Libra thru its manager, Cipriano Ares approved the petitioner's request.

Thus, on September 4, 1979, Wilfredo Dy executed a deed of absolute sale in favor of the petitioner over the tractor in question.

At this time, the subject tractor was in the possession of Libra Finance due to Wilfredo Dy's failure to pay the amortizations.

Despite the offer of full payment by the petitioner to Libra for the tractor, the immediate release could not be effected because Wilfredo Dy had obtained financing not only for said tractor but also for a truck and Libra insisted on full payment for both.

The petitioner was able to convince his sister, Carol Dy-Seno, to purchase the truck so that full payment could be made for both. On November 22, 1979, a PNB check was issued in the amount of P22,000.00 in favor of Libra, thus settling in full the indebtedness of Wilfredo Dy with the financing firm. Payment having been effected through an out-of-town check, Libra insisted that it be cleared first before Libra could release the chattels in question.

Meanwhile, Civil Case No. R-16646 entitled "Gelac Trading, Inc. v. Wilfredo Dy", a collection case to recover the sum of P12,269.80 was pending in another court in Cebu.

On the strength of an alias writ of execution issued on December 27, 1979, the provincial sheriff was able to seize and levy on the tractor which was in the premises of Libra in Carmen, Cebu. The tractor was subsequently sold at public auction where Gelac Trading was the lone bidder. Later, Gelac sold the tractor to one of its stockholders, Antonio Gonzales.

It was only when the check was cleared on January 17, 1980 that the petitioner learned about GELAC having already taken custody of the subject tractor. Consequently, the petitioner filed an action to recover the subject tractor against GELAC Trading with the Regional Trial Court of Cebu City.

On April 8, 1988, the RTC rendered judgment in favor of the petitioner. The dispositive portion of the decision reads as follows:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, pronouncing that the plaintiff is the owner of the tractor, subject matter of this case, and directing the defendants Gelac Trading Corporation and Antonio Gonzales to return the same to the plaintiff herein; directing the defendants jointly and severally to pay to the plaintiff the amount of P1,541.00 as expenses for hiring a tractor; P50,000 for moral damages; P50,000 for exemplary damages; and to pay the cost. (Rollo, pp. 35-36)

On appeal, the Court of Appeals reversed the decision of the RTC and dismissed the complaint with costs against the petitioner. The Court of Appeals held that the tractor in question still belonged to Wilfredo Dy when it was seized and levied by the sheriff by virtue of the alias writ of execution issued in Civil Case No. R-16646.

The petitioner now comes to the Court raising the following questions:

A.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS MISAPPREHENDED THE FACTS AND ERRED IN NOT AFFIRMING THE TRIAL COURT'S FINDING THAT OWNERSHIP OF THE FARM TRACTOR HAD ALREADY PASSED TO HEREIN PETITIONER WHEN SAID TRACTOR WAS LEVIED ON BY THE SHERIFF PURSUANT

TO AN ALIAS WRIT OF EXECUTION ISSUED IN ANOTHER CASE IN FAVOR OF RESPONDENT GELAC TRADING INC.

B.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS EMBARKED ON MERE CONJECTURE AND SURMISE IN HOLDING THAT THE SALE OF THE AFORESAID TRACTOR TO PETITIONER WAS DONE IN FRAUD OF WILFREDO DY'S CREDITORS, THERE BEING NO EVIDENCE OF SUCH FRAUD AS FOUND BY THE TRIAL COURT.

C.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS MISAPPREHENDED THE FACTS AND ERRED IN NOT SUSTAINING THE FINDING OF THE TRIAL COURT THAT THE SALE OF THE TRACTOR BY RESPONDENT GELAC TRADING TO ITS CO- RESPONDENT ANTONIO V. GONZALES ON AUGUST 2, 1980 AT WHICH TIME BOTH RESPONDENTS ALREADY KNEW OF THE FILING OF THE INSTANT CASE WAS VIOLATIVE OF THE HUMAN RELATIONS PROVISIONS OF THE CIVIL CODE AND RENDERED THEM LIABLE FOR THE MORAL AND EXEMPLARY DAMAGES SLAPPED AGAINST THEM BY THE TRIAL COURT. (Rollo, p. 13)

The respondents claim that at the time of the execution of the deed of sale, no constructive delivery was effected since the consummation of the sale depended upon the clearance and encashment of the check which was issued in payment of the subject tractor.

In the case of Servicewide Specialists Inc. v. Intermediate Appellate Court. (174 SCRA 80 [1989]), we stated that:

x x x

x x x

x x x

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.

x x x

x x x

x x x

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.

x x x

x x x

x x x

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.1âwphi1 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.

Fernan,

C.J.,

Feliciano

Davide, Jr., J., took no part.

and

Bidin,

JJ.,

concur.

Republic of the Philippines SUPREME COURT Manila

EN BANC

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 non-fulfillment of the contract.

The evidence adduced shows that after the execution of the deed of the sale the plaintiff, at the request of the purchaser, went to Lucena, accompanied by a representative of the latter, for the purpose of designating and delivering the lands sold. He was able to designate only two of the four parcels, and more than two-thirds of these two were found to be in the possession of one Juan Villafuerte, who claimed to be the owner of the parts so occupied by him. The plaintiff admitted that the purchaser would have to bring suit to obtain possession of the land (sten. notes, record, p. 5). In August, 1914, the surveyor Santamaria went to Lucena, at the request of the plaintiff and accompanied by him, in order to survey the land sold to the defendant; but he surveyed only two parcels, which are those occupied mainly by the brothers Leon and Julio Villafuerte. He did not survey the other parcels, as they were not designated to him by the plaintiff. In order to make this survey it was necessary to obtain from the Land Court a writ of injunction against the occupants, and for the purpose of the issuance of this writ the defendant, in June, 1914, filed an application with the Land Court for the registration in her name of four parcels of land described in the deed of sale executed in her favor by the plaintiff. The proceedings in the matter of this application were subsequently dismissed, for failure to present the required plans within the period of the time allowed for the purpose.

The trial court rendered judgment in behalf of the defendant, holding the contract of sale to be rescinded and ordering the return to the plaintiff the P3,000 paid on account of the price, together with interest thereon at the rate of 10 per cent per annum. From this judgment the plaintiff appealed.

In decreeing the rescission of the contract, the trial judge rested his conclusion solely on the indisputable fact that up to that time the lands sold had not been registered in accordance with the Torrens system, and on the terms of the second paragraph of clause (h) of the contract, whereby it

is stipulated that

Felix, this latter may rescind the present contract of purchase and sale

within one year from the date of the certificate of title in favor of Marciana

."

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

." Therefore the right to elect to rescind the

counted "from the date of the certificate of title

contract was subject to a condition, namely, the issuance of the title. The record show that up to the present time that condition has not been fulfilled; consequently the defendant cannot be heard to invoke a right which depends on the existence of that condition. If in the cross-complaint it had been alleged that the fulfillment of the condition was impossible for reasons imputable to the plaintiff, and if this allegation had been proven, perhaps the condition would have been considered

as fulfilled (arts. 1117, 1118, and 1119, Civ. Code); but this issue was not presented in the defendant's answer.

However, although we are not in agreement with the reasoning found in the decision appealed from, we consider it to be correct in its result. The record shows that the plaintiff did not deliver the

thing sold. With respect to two of the parcels of land, he was not even able to show them to the purchaser; and as regards the other two, more than two-thirds of their area was in the hostile and adverse possession of a third person.

The Code imposes upon the vendor the obligation to deliver the thing sold. The thing is considered to be delivered when it is placed "in the hands and possession of the vendee." (Civ. Code, art. 1462.) It is true that the same article declares that the execution of a public instruments is equivalent to the delivery of the thing which is the object of the contract, but, in order that this symbolic delivery may produce the effect of tradition, it is necessary that the vendor shall have had such control over the thing sold that, at the moment of the sale, its material delivery could have been made. It is not enough to confer upon the purchaser the ownership and the right of possession. The thing sold must be placed in his control. When there is no impediment whatever to prevent the thing sold passing into the tenancy of the purchaser by the sole will of the vendor, symbolic delivery through the execution of a public instrument is sufficient. But if, notwithstanding the execution of the instrument, the purchaser cannot have the enjoyment and material tenancy of the thing and make use of it himself or through another in his name, because such tenancy and enjoyment are opposed by the interposition of another will, then fiction yields to reality the delivery has not been effected.

As Dalloz rightly says (Gen. Rep., vol. 43, p. 174) in his commentaries on article 1604 of the

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."

French Civil code, "the word "delivery" expresses a complex idea

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

to be the possessor in fact, yet this

means of a public instrument should be deemed presumption gives way before proof to the contrary."

It is evident, then, in the case at bar, that the mere execution of the instrument was not a fulfillment of the vendors' obligation to deliver the thing sold, and that from such non-fulfillment arises the purchaser's right to demand, as she has demanded, the rescission of the sale and the return of the price. (Civ. Code, arts. 1506 and 1124.)

Of course if the sale had been made under the express agreement of imposing upon the purchaser the obligation to take the necessary steps to obtain the material possession of the thing sold, and it were proven that she knew that the thing was in the possession of a third person claiming to have property rights therein, such agreement would be perfectly valid. But there is

nothing in the instrument which would indicate, even implicitly, that such was the agreement. It is true, as the appellant argues, that the obligation was incumbent upon the defendant Marciana

Felix to apply for and obtain the registration of the land in the new registry of property; but from this it cannot be concluded that she had to await the final decision of the Court of Land Registration, in order to be able to enjoy the property sold. On the contrary, it was expressly stipulated in the contract that the purchaser should deliver to the vendor one-fourth "of the

products

of the aforesaid four parcels from the moment when she takes possession of them

until the Torrens certificate of title be issued in her favor." This obviously shows that it was not forseen that the purchaser might be deprived of her possession during the course of the

registration proceedings, but that the transaction rested on the assumption that she was to have, during said period, the material possession and enjoyment of the four parcels of land.

Inasmuch as the rescission is made by virtue of the provisions of law and not by contractual agreement, it is not the conventional but the legal interest that is demandable.

It is therefore held that the contract of purchase and sale entered into by and between the plaintiff and the defendant on June 11, 1914, is rescinded, and the plaintiff is ordered to make restitution of the sum of P3,000 received by him on account of the price of the sale, together with interest thereon at the legal rate of 6 per annum from the date of the filing of the complaint until payment, with the costs of both instances against the appellant. So ordered.

Torres, Johnson, Street, Malcolm and Avanceña, JJ., concur.

Republic of the Philippines SUPREME COURT Manila

FIRST DIVISION

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.)

ISIDRO

MELAD

2.

(SGD.)

FELIX

DANGUILAN

3. (T.M.) ILLEGIBLE

EXHIBIT 3-a is quoted as follows: 13

I, DOMINGO MELAD, a resident of Centro, Penablanca, Province of Cagayan, do hereby swear and declare the truth that I have delivered my residential lot at Centro, Penablanca, Cagayan, to Felix Danguilan, my son-in-law because I have no child; that I have thought of giving him my land because he will be the one to take care of SHELTERING me or bury me when I die and this is why I have thought of executing this document; that the boundaries of this lot ison the east, Cresencio Danguilan; on the north, Arellano Street; on the south by Pastor Lagundi and on the west, Pablo Pelagio and the area of this lot is 35 meters going south; width and length beginning west to east is 40 meters.

IN WITNESS HEREOF, I hereby sign this receipt this 18th day of December

1943.

(SGD.) DOMINGO MELAD

WITNESSES:

(SGD.) (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, 15 which would mean that the petitioner farmed the land practically by himself and so provided for the donee (and his wife) during the latter part of Domingo Melad's life. We may assume that there was a fair exchange between the donor and the donee that made the transaction an onerous donation.

Regarding the private respondent's claim that she had purchased the properties by virtue of a deed of sale, the respondent court had only the following to say: "Exhibit 'E' taken together with the documentary and oral evidence shows that the preponderance of evidence is in favor of the appellants." This was, we think, a rather superficial way of resolving such a basic and important issue.

The deed of sale was allegedly executed when the respondent was only three years old and the consideration was supposedly paid by her mother, Maria Yedan from her earnings as a wage worker in a factory. 16 This was itself a suspicious circumstance, one may well wonder why the transfer was not made to the mother herself, who was after all the one paying for the lands. The sale was made out in favor of Apolonia Melad although she had been using the surname Yedan her mother's surname, before that instrument was signed and in fact even after she got married. 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

The ownership,

effect of the agreement to the due execution of the the property right, is only derived from the delivery of a thing

"

As for the argument that symbolic delivery was effected through the deed of sale, which was a public instrument, the Court has held:

The Code imposes upon the vendor the obligation to deliver the thing sold. The thing is considered to be delivered when it is placed "in the hands and possession of the vendee." (Civil Code, art. 1462). It is true that the same article declares that the execution of a public instrument is equivalent to the delivery of

the thing which is the object of the contract, but, in order that this symbolic delivery may produce the effect of tradition, it is necessary that the vendor shall have had such control over the thing sold that, at the moment of the sale, its material delivery could have been made. It is not enough to confer upon the purchaser the ownership and the right of possession. The thing sold must be placed in his control.When there is no impediment whatever to prevent the thing sold passing into the tenancy of the purchaser by the sole will of the vendor, symbolic delivery through the execution of a public instrument is sufficient. But if, notwithstanding the execution of the instrument, the purchaser cannot have the enjoyment and material tenancy of the thing and make use of it himself or through another in his name, because such tenancy and enjoyment are opposed by the interposition of another will, then fiction yields to realitythe delivery has not been effected. 23

There is no dispute that it is the petitioner and not the private respondent who is in actual possession of the litigated properties. Even if the respective claims of the parties were both to be discarded as being inherently weak, the decision should still incline in favor of the petitioner pursuant to the doctrine announced in Santos & Espinosa v. Estejada 24 where the Court announced:

If the claim of both the plaintiff and the defendant are weak, judgment must be for the defendant, for the latter being in possession is presumed to be the owner, and cannot be obliged to show or prove a better right.

WHEREFORE, the decision of the respondent court is SET ASIDE and that of the trial court REINSTATED, with costs against the private respondent. It is so ordered.

Narvasa (Chairman), Gancayco, Griño-Aquino and Medialdea, JJ., concur.

Republic of the Philippines SUPREME COURT Manila

SECOND DIVISION

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 BOCAR defendants-appellees.

Julio Siayngco for plaintiffs-appellants.

ANTONIO, J.:

Filomeno Arteche, Jr. for

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

On February 4, 1963, appellants Calixto Pasagui and Fausta Mosar filed a complaint with the Court of First Instance at Tacloban City, alleging that onNovember 15, 1962, for and in consideration of Two Thousand Eight Hundred Pesos (P2,800.00), they bought from appellees Eustaquia Bocar and Catalina Bocar a parcel of agricultural land with an area of 2.6814 hectares, situated in Hamindangon, Pastrana, Leyte; that the corresponding document of sale was executed, notarized on the same date, and recorded in the Registry of Deeds of Tacloban, Leyte on November 16, 1962; that during the first week of February, 1963, defendant spouses Ester T. Villablanca and Zosimo Villablanca, "illegally and without any right, whatsoever, took possession of the above property harvesting coconuts from the coconut plantation thereon, thus depriving plaintiffs" of its possession; that despite demands made by the plaintiffs upon the above- mentioned defendants "to surrender to them the above-described property and its possession" the latter failed or refused to return said parcel of land to the former, causing them damage; and that Eustaquia and Catalina Bocar, vendors of the property, are included defendants in the complaint by virtue of the warranty clause contained in the document of sale. Plaintiffs prayed for a decision ordering defendants to surrender the possession of the parcel of land above-described to them and to pay damages in the amounts

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

It is well-settled that what determines the jurisdiction of the municipal court in a forcible entry case is the nature of the action pleaded as appears from the allegations in the complaint. In ascertaining whether or not the action is one of forcible entry within the original exclusive jurisdiction of the municipal court, the averments of the complaint and the character of the relief

sought are the ones to be consulted

1

.

In the case at bar, the complaint does not allege that the plaintiffs were in physical possession of the land and have been deprived of that possession through force, intimidation, threat, strategy, or stealth. It simply avers that plaintiffs-appellants bought on November 12, 1962 from defendants- appellees Eustaquia Bocar and Catalina Bocar the parcel of land in question for the amount of P2,800.00; that a deed of sale was executed, notarized and registered;that "during this first week of February, 1963, defendants Ester T. Villablanca and her husband, Zosimo Villablanca, illegally and without any right whatsoever, took possession of the above described property, harvesting coconuts from the coconut plantation therein, thus depriving of its possession herein plaintiffs, and causing them damages for the amount of EIGHT HUNDRED PESOS (P800.00)"; that for the purpose of enforcing the vendors' warranty in case of eviction, Eustaquia Bocar and Catalina Bocar were also included as defendants; and, therefore, plaintiffs-appellants pray that a decision be rendered, ordering (a) defendants Ester T. Villablanca and her husband, Zosimo Villablanca, "to surrender the possession of the above described property to said plaintiffs"; (b) defendants Ester T. Villablanca and her husband, Zosimo Villablanca, "to pay to said plaintiffs the amount of EIGHT HUNDRED PESOS (P800.00) as damages for the usurpation by them of said property"; and (c) defendants Eustaquia Bocar and Catalina Bocar "to pay the plaintiffs the amount of P2,800.00, plus incidental expenses, as provided for by Art. 1555 of the Civil Code, in case of eviction or loss of ownership to said above described property on the part of plaintiffs." .

It is true that the execution of the deed of absolute sale in a public instrument is equivalent to

delivery of the land subject of the sale. 2 This presumptive delivery only holds true when there is no impediment that may prevent the passing of the property from the hands of the vendor into those of the vendee. It can be negated by the reality that the vendees actually failed to obtain material

possession of the land subject of the sale

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

3 It appears from the records of the case at bar that

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

WHEREFORE, the order of dismissal is hereby set aside, and the case remanded to the court a quo for further proceedings. Costs against

Barredo, Actg. (Chairman), Aquino, Concepcion, Jr. and Martin. JJ.,

Fernando (Chairman), J, is on leave.

FIRST DIVISION

G.R. No. 119255

April 9, 2003

TOMAS K. CHUA, petitioner, vs. COURT OF APPEALS and ENCARNACION VALDES-CHOY, respondents.

CARPIO, J.:

The Case

This is a petition for review on certiorari seeking to reverse the decision 1 of the Court of Appeals in an action for specific performance 2 filed in the Regional Trial Court 3 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:

R E C E I P T

30 June 1989

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 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

CONFORME:

TOMAS K. CHUA Buyer

x x x. 7

ENCARNACION

VALDES

Seller

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 writing 9 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:

SELLING PRICE

EARNEST MONEY

PARTIAL PAYMENT

P100,000.00

485,000.00

P10,800,000.00

585,000.00

BALANCE

DUE

TO

ENCARNACION VALDEZ-CHOY

P10,215,000.00

PLUS P80,000.00 for documentary stamps paid in advance by seller

80,000.00

P10,295,000.00

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 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:

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;

b. the covering tax declaration and the latest tax receipt evidencing payment of

real estate taxes;

c. the two deeds of sale prepared by Atty. Mark Bocobo on July 13, 1989, duly

executed by defendant in favor of the plaintiff, whether notarized or not; and

2. Within five (5) days from compliance by the defendant of the above, ordering the

plaintiff to deliver to the Branch Clerk of Court of this Court the sum of P10,295,000.00 representing the balance of the consideration (with the sum of P80,000.00 for stamps already included);

3. Ordering the Branch Clerk of this Court or her duly authorized representative:

a. to make representations with the BIR for the payment of capital gains tax for

the sale of the house and lot (not to include the fixtures) and to pay the same from the funds deposited with her;

b. to present the deed of sale executed in favor of the plaintiff, together with the

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;

c. to pay the required registration fees and stamps (if not yet advanced by the

defendant) and if needed update the real estate taxes all to be taken from the funds deposited with her; and

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

4. Should the defendant fail or refuse to surrender the two deeds of sale over the property

and the fixtures that were prepared by Atty. Mark Bocobo and executed by the parties, the Branch Clerk of Court of this Court is hereby authorized and empowered to prepare, sign and execute the said deeds of sale for and in behalf of the defendant;

5. Ordering the defendant to pay to the plaintiff;

a. the sum of P100,000.00 representing moral and compensatory damages for

the plaintiff; and

b. the sum of P50,000.00 as reimbursement for 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;

b. the expenses incurred in the registration of the sale, updating of real estate

taxes, and transfer of title; and

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

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

with the furnishings intact within seventy-two (72) hours from receipt of the proceeds of the sale;

9. No interest is imposed on the payment to be made by the plaintiff because he had

always been ready to pay the balance and the premises had been used or occupied by the defendant for the duration of this case.

II. In the event that specific performance cannot be done for reasons or causes not attributable to the plaintiff, judgment is hereby rendered ordering the defendant:

1. To refund to the plaintiff the earnest money in the sum of P100,000.00, with interest at

the legal rate from June 30, 1989 until fully paid;

2. To refund to the plaintiff the sum of P485,000.00 with interest at the legal rate from July

14, 1989 until fully paid;

3. To pay to the plaintiff the sum of P700,000.00 in the concept of moral damages and the

additional sum of P300,000.00 in the concept of exemplary damages; and

4. To pay to the plaintiff the sum of P100,000.00 as reimbursement of 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 counter-claim; 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 Valdes-Choy wanted to be first paid the full consideration before a new TCT covering the Property is issued in the name of Chua. On the other hand, Chua did not want to pay the consideration in full unless a new TCT is first issued in his name. The trial court faulted Valdes-Choy for this impasse.

The trial court held that the parties entered into a contract to sell on 30 June 1989, as evidenced by the Receipt for the P100,000.00 earnest money. The trial court pointed out that the contract to sell was subject to the following conditions: (1) the balance of P10,700,000.00 was payable not later than 15 July 1989; (2) Valdes-Choy may stay in the Property until 13 August 1989; and (3) all papers must be "in proper order" before full payment is made.

The trial court held that Chua complied with the terms of the contract to sell. Chua showed that he was prepared to pay Valdes-Choy the consideration in full on 13 July 1989, two days before the deadline of 15 July 1989. Chua even added P80,000.00 for the documentary stamp tax. He purchased from PBCom two 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.

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;

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.

Further, there is no controversy that as embodied in the Receipt, Valdes-Choy and Chua agreed on the following terms: (1) the balance of P10,215,000.00 is payable on or before 15 July 1989; (2) the capital gains tax is for the account of Valdes-Choy; and (3) if Chua fails to pay the balance of P10,215,000.00 on or before 15 July 1989, Valdes-Choy has the right to forfeit the earnest money, provided that "all papers are in proper order." On 13 July 1989, Chua gave Valdes-Choy the PBCom 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 1592 22 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 Valdes-Choy 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

Balance of the Purchase Price and Forfeiture of the Earnest Money

and

Fourth

Issues:

Withholding

of

Payment

of

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 ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.

x x x. (Emphasis supplied)

Prior to the existence of the contract of sale, the seller is not obligated to transfer ownership to the buyer, even if there is a contract to sell between them. It is also upon the existence of the contract of sale that the buyer is obligated to pay the purchase price to the seller. Since the transfer of ownership is in exchange for the purchase price, these obligations must be simultaneously fulfilled at the time of the execution of the contract of sale, in the absence of a contrary stipulation.

In a contract of sale, the obligations of the seller are specified in Article 1495 of the Civil Code, as follows:

Art. 1495. The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing which is the object of the sale. (Emphasis supplied)

The obligation of the seller is to transfer to the buyer ownership of the thing sold. In the sale of real property, the seller is not obligated to transfer in the name of the buyer a new certificate of title, but rather to transfer ownership of the real property. There is a difference between transfer of the certificate of title in the name of the buyer, and transfer of ownership to the buyer. The buyer may become the owner of the real property even if the certificate of title is still registered in the name of the seller. As between the seller and buyer, ownership is transferred not by the issuance of a new certificate of title in the name of the buyer but by the execution of the instrument of sale in a public document.

In a contract of sale, ownership is transferred upon delivery of the thing sold. As the noted civil law

commentator Arturo M. Tolentino explains it, -

Delivery is not only a necessary condition for the enjoyment of the thing, but is a mode of acquiring dominion and determines the transmission of ownership, the birth of the real right. The delivery, therefore, made in any of the forms provided in articles 1497 to 1505 signifies that the transmission of ownership from vendor to vendee has taken place. The delivery of the thing constitutes an indispensable requisite for the purpose of acquiring ownership. Our law does not admit the doctrine of transfer of property by mere consent; the ownership, the property right, is derived only from delivery of the thing. x x x. 33 (Emphasis supplied)

In a contract of sale of real property, delivery is effected when the instrument of sale is executed in

a public document. When the deed of absolute sale is signed by the parties and notarized, then

delivery of the real property is deemed made by the seller to the buyer. Article 1498 of the Civil Code provides that

Art. 1498. When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred.

x x x.

Similarly, in a contract to sell real property, once the seller is ready, able and willing to sign the deed of absolute sale before a notary public, the seller is in a position to transfer ownership of the real property to the buyer. At this point, the seller complies with his undertaking to sell the real property in accordance with the contract to sell, and to assume all the obligations of a vendor under a contract of sale pursuant to the relevant articles of the Civil Code. In a contract to sell, the seller is not obligated to transfer ownership to the buyer. Neither is the seller obligated to cause the issuance of a new certificate of title in the name of the buyer. However, the seller must put all his papers in proper order to the point that he is in a position to transfer ownership of the real property to the buyer upon the signing of the contract of sale.

In the instant case, Valdes-Choy was in a position to comply with all her obligations as a seller

under the contract to sell. First, she already signed the Deeds of Sale in the office of her counsel

in the presence of the buyer. Second, she was prepared to turn-over the 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

Art. 1582. The vendee is bound to accept delivery and to pay the price of the thing sold at the time and place stipulated in the contract.

x x x. (Emphasis supplied)

In this case, the contract to sell stipulated that Chua should pay the balance of the purchase price "on or before 15 July 1989." The signed Deeds of Sale also stipulated that the buyer shall pay the balance of the purchase price upon signing of the deeds. Thus, the Deeds of Sale, both signed by Chua, state as follows:

Deed of Absolute Sale covering the lot:

x x x

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:

x x x

For and in consideration of the sum of TWO MILLION EIGHT HUNDRED THOUSAND PESOS (P2,800,000.00), Philippine Currency, receipt of which in full is hereby acknowledged by the VENDOR from the VENDEE, the VENDOR sells, transfers and conveys unto the VENDEE, his heirs, successors and assigns, the said furnitures, fixtures and other movable properties thereon, free from all liens and encumbrances. 35 (Emphasis supplied)

However, on the agreed date, Chua refused to pay the balance of the purchase price as required by the contract to sell, the signed Deeds of Sale, and Article 1582 of the Civil Code. Chua was therefore in default and has only himself to blame for the rescission by Valdes-Choy of the contract to sell.

Even if measured under existing usage or custom, Valdes-Choy had all her papers "in proper order." Article 1376 of the Civil Code provides that:

Art. 1376. The usage or custom of the place shall be borne in mind in the interpretation of the ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily established.

Customarily, in the absence of a contrary agreement, the submission by an individual seller to the buyer of the following papers would complete a sale of real estate: (1) 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 Valdes-Choy 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.

Davide, Jr., C.J., (Chairman), Vitug, Ynares-Santiago, and Azcuna, JJ., concur.

SECOND DIVISION

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.

CALLEJO, SR., J.:

D E C I S I O N

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

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

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 sale 6 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:

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;

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 answer 13 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:

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 1495 18 of the New Civil Code, petitioner VELI, as the vendor, is obliged to transfer title over the property and deliver the same to the vendee. While Article 1498 19 of the New Civil Code provides that the execution of a notarized deed of absolute sale shall be equivalent to the delivery of the property subject of the contract, the same shall not apply if, from the deed, the contrary does not appear or cannot clearly be inferred. In the present case, the respondent and petitioner VELI agreed that the latter would cause the eviction of the tenants/occupants and deliver possession of the property. It is clear that at the time the petitioner executed the deed of sale in favor of the respondent, there were tenants/occupants in the property. It cannot, thus, be concluded that, through the execution of the third deed of sale, the property was thereby delivered to the respondent.

Petitioner VELI is obliged to cause the eviction of the tenants/occupants unless there is a contrary agreement of the parties. Indeed, under the addendum executed by petitioner VELI and the respondent, the latter was given the right to withhold P300,000.00 of the purchase price until after petitioner VELI cleared the property of squatters.

While it is true that the respondent acquired the rights and interests of TATIC under the first deed of sale and that of petitioner VELI under the second deed of sale by virtue of the deed of assignment of rights executed by the petitioners and the respondent, the latter cannot enforce the terms and conditions of the said deeds. It must be stressed that there is no showing in the records that the Spouses Flores, Tobias and TATIC conformed to the said deed of assignment of rights or that the same was registered in the office of the Register of Deeds in accordance with Article 1625 20 of the New Civil Code.

Moreover, the execution, by petitioner VELI and the respondent, of such deed of assignment of rights did not relieve the said petitioner of its obligation to clear the property of tenants/occupants. This is because the following agreement was embodied in their addendum:

NOW THEREFORE, for and in consideration of the foregoing premises, the Transferee hereby retains and holds from the Transferor the amount of Three Hundred Thousand & 00/100 Pesos (P300,000.00), from the purchase price due the Transferor until after the premises have been rid of and cleared from squatters occupying therein.

That after the said parcel of land has been cleared of squatters, the Transferee shall immediately remit to the Transferor the aforesaid sum of Three Hundred Thousand & 00/100 Pesos (P300,000.00) without need of further act or deed. 21

VELI

Payment of the Capital Gains Tax for the Third Sale

Petitioner

is

Not

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

13, 1985), 127 (July 12, 1983), 191 (November 15, 1983), 195 (November 15, 1983), 60 (May 12, 1986), 177 (September 17, 1986), and 415-87 (December 23, 1987), definitely ruled that the corporations were exempt from the payment of capital gains tax. Their income from the sale or exchange or disposition of real property was treated as ordinary income, and was taxed as such. One of the opinions of the BIR Commissioner reads:

Ruling September 13, 1985

Gentlemen:

No.

159

In reply to your letter dated September 11, 1985, I have the honor to inform you that Revenue Regulations No. 8-79 implementing Section 34(h) of the Tax Code, as amended by Batas Pambansa Blg. 37 is explicit that only natural persons or individuals are liable to the final capital gains tax prescribed therein. Such being the case, the gains derived by your client, the Religious of the Virgin Mary from the sale of its real property in Balanga, Bataan, is not subject to the final capital gains tax prescribed by Section 34(h) of the Tax Code, as amended by Batas Pambansa Blg. 37 but to the ordinary corporate income tax prescribed under Section 24(a) of the same Code, as amended.

Very truly yours,

(Sgd.)

RUBEN

B.

ANCHETA

Acting Commissioner

This is the reason why, in the second sale, neither TATIC nor petitioner VELI paid any capital gains tax. Similarly, in the third sale, i.e., between petitioner VELI and the respondent, petitioner VELI, being a corporation, was not obliged to pay the capital gains tax. However, petitioner VELI, as seller, should have included in its ordinary income tax return, whatever gain or loss it incurred with respect to the sale of the property in dispute, pursuant to Section 24(a) 26 of the 1977 NIRC, as amended.

We do not agree with the ruling of the CA that, under Section 24(d) of the 1997 NIRC, previously Section 34(h) of the 1977 NIRC, petitioner VELI is obliged to pay capital gains tax for its sale of the property to the respondent. Section 34(h) of the 1977 NIRC, as amended by B.P. Blg. 37 reads as follows:

(h) The provision of paragraph (b) of this Section to the contrary notwithstanding, net capital gains from the sale or other disposition of real property by citizens of the Philippines or resident alien individuals shall be subject to the final income tax rates prescribed as follows:

NET CAPITAL GAINS RATES

On the first P100,000 or less 10%

On any amount over P100,000 20%

Such tax shall be in lieu of the tax imposed under Section 21 of this Code; Provided, however, That the tax liability, if any, on gains from sales or other dispositions of real property to the government or any of its political subdivisions or agencies or to government-owned and controlled corporations shall be determined either under Section 21 hereof or under this Section, at the option of the taxpayer; Provided, further, That if the taxpayer elects to report such gains in accordance with the 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.

Puno, J., Austria-Martinez, Callejo, Sr., Tinga, and Chico-Nazario, JJ., concur.

Republic of the Philippines SUPREME COURT Manila

G.R. No. 13203

EN BANC

September 18, 1918

BEHN, MEYER & CO. (LTD.), plaintiff-appellant, vs. TEODORO R. YANCO, defendant-appellee.

MALCOLM, J.:

Crossfield & O'Brien for appellant. Charles C. Cohn for appellee.

The first inquiry to be determined is what was the contract between the parties.

The memorandum agreement executed by the duly authorized representatives of the parties to this action reads:

Contract No. 37.

MANILA,

7 de marzo, de 1916.

Confirmanos haber vendido a Bazar Siglo XX, 80 drums Caustic Soda 76 per cent "Carabao" brand al precio de Dollar Gold Nine and 75/100 per 100-lbs., c.i.f. Manila, pagadero against delivery of documents. Embarque March, 1916.

Comprador

de

J. Siquia

Bazar

R.

Teodoro

Siglo

XX

Yangco

BEHN,

MEYER

O. LOMBECK.

&

CO.

Vendores

(Ltd.)

This contract of sale can be analyzed into three component parts.

1. SUBJECT MATTER AND CONSIDERATION.

Facts. The contract provided for "80 drums Caustic Soda 76 per cent "Carabao" brand al precio de Dollar Gold Nine and 75/100 1-lbs."

Resorting to the circumstances surrounding the agreement are we are permitted to do, in pursuance of this provision, the merchandise was shipped from New York on the steamship Chinese Prince. The steamship was detained by the British authorities at Penang, and part of the cargo, including seventy-one drums of caustic soda, was removed. Defendant refused to accept delivery of the remaining nine drums of soda on the ground that the goods were in bad order. Defendant also refused the optional offer of the plaintiff, of waiting for the remainder of the shipment until its arrival, or of accepting the substitution of seventy-one drums of caustic soda of similar grade from plaintiff's stock. The plaintiff thereupon sold, for the account of the defendant, eighty drums of caustic soda from which there was realized the sum of P6,352.89. Deducting this sum from the selling price of P10,063.86, we have the amount claimed as damages for alleged breach of the contract.

Law. It is sufficient to note that the specific merchandise was never tendered. The soda which the plaintiff offered to defendant was not of the "Carabao" brand, and the offer of drums of soda of another kind was not made within the time that a March shipment, according to another provision the contract, would normally have been available.

2. PLACE OF DELIVERY.

Facts. The contract provided for "c.i.f. Manila, pagadero against delivery of documents."

Law. Determination of the place of delivery always resolves itself into a question of act. If the contract be silent as to the person or mode by which the goods are to be sent, delivery by the vendor to a common carrier, in the usual and ordinary course of business, transfers the property to the vendee. A specification in a contact relative to the payment of freight can be taken to indicate the intention of the parties in regard to the place of delivery. If the buyer is to pay the freight, it is reasonable to suppose that he does so because the goods become his at the point of shipment. On the other hand, if the seller is to pay the freight, the inference is equally so strong that the duty of the seller is to have the goods transported to their ultimate destination and that title to property does not pass until the goods have reached their destination. (See Williston on Sales, PP. 406-

408.)

The letters "c.i.f." found in British contracts stand for cost, insurance, and freight. They signify that the price fixed covers not only the cost of the goods, but the expense of freight and insurance to be paid by the seller. (Ireland vs.Livingston, L. R., 5 H. L., 395.) Our instant contract, in addition to the letters "c.i.f.," has the word following, "Manila." Under such a contract, an Australian case is authority for the proposition that no inference is permissible that a seller was bound to deliver at the point of destination. (Bowden vs. Little, 4 Comm. [Australia], 1364.)

In mercantile contracts of American origin the letters "F.O.B." standing for the words "Free on Board," are frequently used. The meaning is that the seller shall bear all expenses until the goods are delivered where they are to be "F.O.B." According as to whether the goods are to be delivered "F.O.B." at the point of shipment or at the point of destination determines the time when property passes.

Both the terms "c.i.f." and "F.O.B." merely make rules of presumption which yield to proof of contrary intention. As Benjamin, in his work on Sales, well says: "The question, at last, is one of intent, to be ascertained by a consideration of all the circumstances." For instance, in a case of Philippine origin, appealed to the United States Supreme Court, it was held that the sale was complete on shipment, though the contract was for goods, "F.O.B. Manila," the place of destination the other terms of the contract showing the intention to transfer the property. (United States vs. R. P. Andrews & Co. [1907], 207 U.S., 229.)

With all due deference to the decision of the High Court of Australia, we believe that the word Manila in conjunction with the letters "c.i.f." must mean that the contract price, covering costs, insurance, and freight, signifies that delivery was to made at Manila. If the plaintiff company has seriously thought that the place of delivery was New York and Not Manila, it would not have gone to the trouble of making fruitless attempts to substitute goods for the merchandise named in the contract, but would have permitted the entire loss of the shipment to fall upon the defendant. Under plaintiffs hypothesis, the defendant would have been the absolute owner of the specific soda confiscated at Penang and would have been indebted for the contract price of the same.

This view is corroborated by the facts. The goods were not shipped nor consigned from New York to plaintiff. The bill of lading was for goods received from Neuss Hesslein & Co. the documents evidencing said shipment and symbolizing the property were sent by Neuss Hesslein & Co. to the Bank of the Philippine Islands with a draft upon Behn, Meyer & Co. and with instructions to deliver the same, and thus transfer the property to Behn, Meyer & Co. when and if Behn, Meyer & Co. should pay the draft.

The place of delivery was Manila and plaintiff has not legally excused default in delivery of the specified merchandise at that place.

3. TIME OF DELIVERY.

Facts. The contract provided for: "Embarque: March 1916," the merchandise was in fact shipped from New York on the Steamship Chinese Prince on April 12, 1916.

Law. The previous discussion makes a resolution of this point unprofitable, although the decision of the United States Supreme Court in Norrington vs. Wright (([1885], 115 U.S., 188) can be read with profit. Appellant's second and third assignments of error could, if necessary, be admitted, and still could not recover.

THE CONTRACT.

To answer the inquiry with which we begun this decision, the contract between the parties was for 80 drums of caustic soda, 76 per cent "Carabao" brand, at the price of $9.75 per one hundred pounds, cost, insurance, and freight included, to be shipped during March, 1916, to be delivered to Manila and paid for on delivery of the documents.

PERFORMANCE.

In resume, we find that the plaintiff has not proved the performance on its part of the conditions precedent in the contract. The warranty the material promise of the seller to the buyer has not been complied with. The buyer may therefore rescind the contract of sale because of a breach in substantial particulars going to the essence of the contract. As contemplated by article 1451 of the Civil Code, the vendee can demand fulfillment of the contract, and this being shown to be impossible, is relieved of his obligation. There thus being sufficient ground for rescission, the defendant is not liable.

The judgment of the trial court ordering that the plaintiff take nothing by its action, without special finding as to costs, is affirmed, with the costs of this instance. Against the appellant. So ordered.

Arellano, C.J., Torres, Johnson, Street and Avanceña, JJ., concur.

EN BANC

[G.R. No. L-8717. November 20, 1956.]

GENERAL FOODS CORPORATION, Plaintiff-Appellant, vs. NATIONAL COCONUT CORPORATION, Defendant-Appellee.

D E C I S I O N

REYES, J. B. L., J.:

Appellant General Foods Corporation is a foreign corporation organized under the laws of the State of Delaware, U. S. A., and licensed to do business in the Philippines; chan roblesvirtualawlibrarywhile Appellee National Coconut Corporation (otherwise called NACOCO), was, on the date of the transaction in question, a corporation created by Commonwealth Act No.

518, but later abolished and place in liquidation by Executive Order No. 3727 dated November 24,

1950.

On September 23, 1947, Appellee sold to Appellant 1,500 (later reduced to 1,000) long tons of copra, at $164 (later reduced to $163) per ton of 2,000 pounds, under the following terms and conditions:chanroblesvirtuallawlibrary

―CONTRACT NO. RH-3551

FRANKLIN BAKER DIVISION OF GENERAL FOODS CORPORATION

15th & Bloomfield Streets

Hoboken, New Jersey

WE CONFIRM HAVING PURCHASED FOR YOU TODAY from Messrs. National Coconut Corporation, Manila, Philippine Islands, through Mercantile, Inc., Manila, P. I.

COMMODITY:chanroblesvirtuallawlibrary COPRA Fair Merchantable Quality, Basis

6% F. F. A.

QUALITY:chanroblesvirtuallawlibrary As per rule 100 of National Institute of

Oilseeds Products.

QUANTITY:chanroblesvirtuallawlibrary Fifteen Hundred (1500) tons of 2,240 pounds each. Seller has the option of delivering 5 per cent more or less of the contracted quantity, such surplus or deficiency to be settled as follows:chanroblesvirtuallawlibrary On the basis of the delivered weight up to 3 per cent at the contract price and any excess or deficiency beyond this 3 per cent at the market price of the day of arrival at port of discharge, this market price to be fixed by the Executive Committee of the National Institute of Oilseeds Products. Each shipment to be treated as a separate contract.

PACKING:chanroblesvirtuallawlibrary In bulk. SHIPMENT:chanroblesvirtuallawlibrary November, 1947, earlier if possible, from Philippine Islands.

PRICE:chanroblesvirtuallawlibrary One hundred and sixty-four dollars ($164) per ton of 2,000 pounds, CIF New York.

PAYMENT:chanroblesvirtuallawlibrary Buyers to open immediately by cable in favor of Sellers Irrevocable Letter of Credit through the Philippine National Bank for 95 per cent of invoice value based on shipping weight in exchange for the following documents:chanroblesvirtuallawlibrary

1. Provisional Invoice.

2. Full set of negotiable ocean bills of lading, freight charges fully prepaid and showing the

material on board.

3. Weight Certificate confirming quantity shown on invoice and bill of lading.

4. Consular invoice or certificate of origin in duplicate.

5. Loading survey report and weight certificate of Superintendence Corporation.

6. Consular form No. 197 (Pure Food & Drug Certificate).

Balance due to be paid promptly upon ascertainment and based upon outturn weights and quality at port of discharge.

WEIGHTS:chanroblesvirtuallawlibrary Net landed weights.

SAMPLING:chanroblesvirtuallawlibrary As Products.

INSURANCE:chanroblesvirtuallawlibrary Buyer to provide valid insurance for Marine and War risks for 110 per cent of CIF contract value. Seller to allow buyer from the CIF price an amount equivalent to the current rate of insurance prevailing on the date of shipment, in lieu of sellers covering usual marine insurance themselves.

CLAUSE PARAMOUNT:chanroblesvirtuallawlibrary This contract is subject to published rules of the National Institute of Oilseeds Products adopted and now in force, which are hereby made

a part hereof. Any dispute arising under this contract shall be settled by a Board of Arbitrators

selected by the Chairman of the Foreign Commerce Association of the San Francisco Chamber of Commerce and to be judged according to the rules of the National Institute of Oilseeds Products and the findings of said Board will be final and binding upon all the signatories hereto, providing such rules are not in conflict with existing Government regulations.

The above shipment to be made under Franklin Baker‘s license No. 26429. This contract covers the sale made by the Nacoco thru the Mercantile, Inc. dated September 9, 1947 in the Philippines.‖ (Exhibit ―A‖).

From November 14 to December 3, 1947, Appellee shipped 1054.6278 short tons of copra to Appellant on board the S. S. ―Mindoro‖. The weighing of the cargo was done by the Luzon Brokerage Co., in its capacity as agent of the General Superintendence Co., Ltd., of Geneva, Switzerland, by taking the individual weight of each bag of copra and summing up the total gross weight of the shipment, then weighing a certain number of empty bags to determine the average tare of the empty bags, which was subtracted from the gross weight of the shipment to determine the net weight of the cargo. On the strength of the net weigh thus found, Appellee prepared and remitted to Appellant the corresponding bills of lading and other documents, and withdrew from the latter‘s letter of credit 95 per cent of the invoice value of the shipment, or a total of

$136,686.95.

Oilseeds

per

Rule

101

of

National

Institute

of

Upon arrival in New York, the net cargo was reweighed by Appellant and was found to weigh only 898.792 short tons. Deducting from the value of the shortage the sum of $8,092.02 received by Appellant from the insurer for 58.25 long tons lost or destroyed even before the copra was loaded on board the vessel, Appellant demanded from Appellee the refund of the amount of $24,154.59. Sometime after the receipt of Appellant‘s demand, the Appellee, through its officers- in-charge Jose Nieva, Sr., acknowledged in a letter liability for the deficiency in the outturn weights of the copra and promised payment thereof as soon as funds were available (Exhibit ―B‖). Then Appellee was, as already stated, abolished and went into liquidation. Appellant submitted its claim to the Board of Liquidators, which refused to pay the same; chan roblesvirtualawlibrarywherefore, it filed the present action in the Court of First Instance of Manila to recover from Defendant-Appellee the amount of $24,154.49 and the 17 per cent exchange tax thereon which, under the provisions of Republic Act 529, had to be paid in order to remit said amount to the United States, plus attorney‘s fees and costs. The Court a quo found for the Defendant and dismissed the complaint; chan roblesvirtualawlibraryhence, this appeal by Plaintiff.

Plaintiff-Appellant‘s theory is that although the sale between the parties quoted a CIF New York price, the agreement contemplated the payment of the price according to the weight and quality of the cargo upon arrival in New York, the port of destination, and that therefore, the risk of the shipment was upon the seller. Defendant-Appellee, on the other hand, insists that the contract in question was an ordinary C. I. F. agreement wherein delivery to the carrier is delivery to the buyer, and that the shipment having been delivered to the buyer and the latter having paid its price, the sale was consummated.

There is no question that under an ordinary C.I.F. agreement, delivery to the buyer is complete upon delivery of the goods to the carrier and tender of the shipping and other documents required by the contract and the insurance policy taken in the buyer‘s behalf (77 C.J. S. 983; chan roblesvirtualawlibrary46 Am. Jur. 313; chan roblesvirtualawlibraryII Williston on Sales, 103 107). There is equally no question that the parties may, by express stipulation or impliedly (by making the buyer‘s obligation depend on arrival and inspection of the goods), modify a CIF contract and throw the risk upon the seller until arrival in the port of destination (77 CJS 983- 984; chan roblesvirtualawlibraryWilliston, supra, 116; chan roblesvirtualawlibraryalso Willits vs. Abekobei, 189 NYS 525; chan roblesvirtualawlibraryNational Wholesale Grocery Co. vs. Mann. 146 NE 791, Klipstein vs. Dilsizian, 273 F 473).

In the transaction now in question, despite the quoted price of CIF New York, and the right of the seller to withdraw 95 per cent of the invoice price from the buyer‘s letter of credit upon tender of the shipping and other documents required by the contract, the express agreement that the ―Net Landed Weights‖ were to govern, and the provision that the balance of the price was to be ascertained on the basis of outturn weights and quality of the cargo at the port of discharge, indicate an intention that the precise amount to be paid by the buyer depended upon the ascertainment of the exact net weight of the cargo at the port of destination. That is furthermore shown by the provision that the seller could deliver 5 per cent more or less than the contracted quantity, such surplus or deficiency to be paid ―on the basis of the delivered weight‖.

In our opinion, the governing rule may be found in the decision of the Supreme Court of New York in the case of Warner, Barnes & Co. vs. Warner Sugar R. Co., 192 NYS 151, cited in Appellee‘s brief (pp. 16-19.) In said case, the parties had expressly agreed that the payment of the price was to be according to ―landed weights‖, and that delivery of the goods shipped from the Philippine Islands to New York was to be in New York ex vessel at wharf; chan roblesvirtualawlibrarybut it was also agreed that the seller had the right, upon presentation of full shipping documents,

including full insurance, to draw upon the Defendants for 90 per cent of the invoice price, evidencing an intent to give the buyers dominion over the goods and to place the risk of loss upon them. The reasonable construction given by the Court to this contract was that:chanroblesvirtuallawlibrary

―though the seller was required to deliver the goods at a customary wharf in New York, and the price could not be finally determined until the goods were landed, yet the property in the goods and the risk of loss was intended to pass when the full shipping documents were presented, including an insurance policy. If the goods were totally lost, then by the express terms of the contract the buyers were to pay the full amount of invoice and if the goods were partially lost, then it is fairly inferable that, while payment was to be made according to landed weights, the seller should not be deprived of the right to show that these landed weights were diminished by loss or damage due to the risk of the voyage. Any other construction of the contract would require the seller to provide insurance for the buyer for a loss which falls not on the buyer, but on the seller.‖ (Emphasis supplied.)

The same could be said in the instant case. While the risk of loss was apparently placed on the Appellant after delivery of the cargo to the carrier, it was nevertheless agreed that the payment of the price was to be according to the ―net landed weight‖. The net landed or outturn weight of the cargo, upon arrival in New York, was 898.692 short tons. Although the evidence shows that the estimated weight of the shipment when it left Manila was 1,054.6278 tons, the Appellee had the burden of proof to show that the shortage in weight upon arrival in New York was due to risks of the voyage and not the natural drying up of the copra while in transit, or to reasonable allowances for errors in the weighing of the gross cargo and the empty bags in Manila. In the absence of such proof on the part of the shipper-Appellee, we are constrained to hold that the net landed weight of the shipment in New York should control, as stipulated in the agreement, and that therefore, the Appellee should be held liable for the amount of $24,154.59 which it had overdrawn from Appellant‘s letter of credit.

Appellee contends that as it was only the ―balance due to be paid‖ that was to be ascertained and based ―upon outturn weights and quality at port of discharge‖, as provided in the contract, there was no more balance due to be ascertained at the port of discharge because it had already received full payment of the copra it sent to the Appellant when it withdrew $136,686.95 from the latter‘s letter of credit. The argument is untenable. The provision regarding the ascertainment of the balance due based upon outturn weight and quality of the shipment at the port of discharge, should not be construed separately from the stipulation that the ―net landed weight‖ was to control. The manifest intention of the parties was for the total price to be finally ascertained only upon determining the net weight and quality of the goods upon arrival in New York, most likely because the cargo in question, being copra, by nature dries up and diminishes in weight during the voyage; chan roblesvirtualawlibrarythat no bulk weigher was available in Manila so that the best that could be done was to get the gross weight of the shipment and deduct the average tare of the empty bags; chan roblesvirtualawlibraryand that the buyer in New York had no agent in Manila to represent it and protect its interest during the weighing of the cargo. The intention of the parties to be bound by the outturn or net landed weight in New York is clearly shown in the letter of Appellee‘s then officer-in-charge Jose Nieva, Sr., acknowledging liability for the deficiency in the outturn weight of the copra (Exhibit ―B‖). Although this letter may not be considered an admission of liability on the part of Appellee in the absence of a showing that Nieva was authorized to admit liability for the corporation, it is nevertheless competent evidence of the intention of the parties, particularly the NACOCO, to be bound by the net landed weight or outturn weight of the copra at the port of discharge.

With respect to Appellant‘s claim for damages equivalent to the 17 per cent excise tax which it has to pay in order to remit the sum of $24,154.59 to the United States, such excise tax is no longer imposed in view of the trade (Laurel-Langley) agreement, so that it need not be taken into account.

Wherefore, the judgment appealed from is reversed and the Appellee National Coconut Corporation is ordered to pay the Appellant General Foods Corporation the equivalent in Philippine currency of the amount of $24,154.59, with legal interest from the time of the filing of the complaint. No pronouncement as to costs. SO ORDERED.

Parás, C.J., Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia and Felix, JJ., concur.

Pacific Vegetable Oil Corporation v. Angel Singzon

GR. No. L-7917 (Unreported Case)

Facts:

This is an action instituted by the plaintiff, a foreign corporation, against the defendant to recover the sum of P157,760 as damages suffered by plaintiff as a consequence of the failure of the defendant to deliver 300 tons of copra which he sold and bound himself to deliver to the plaintiff.

Singzon in August 1947, acting through a broker in San Francisco, sold to Pacific 500 tons of copra for shipment in September and October 1947. The agreed price to be covered by an irrevocable letter of credit for the contract price. Thus, pursuant to this, the Bank of California, on behalf of Pacific, opened an irrevocable letter of credit with China Bank in the Philippines. Singzon failed to ship the 500 tons of copra, but upon negotiation through the broker, a conditional amicable settlement was arrived at under which Singzon promised to ship on February 1948, the amount of 300 tons of copra with the understanding that if he effectually ship said 300 tons of copra not later than February, the original contract would be considered cancelled. But that should he fail to ship said 300 tons, Singzon shall pay Pacific $10,000 as damages and shall furthermore be obliged to fulfill all his obligations under original contract.

Singzon failed to ship and deliver the 300 tons of copra to Pacific according to their agreement. Thereafter, Pacific demanded from Singzon the payment of $10,000 but he failed and refused to ship the 500 tons of copra. As a result of the default, Pacific was forced to purchase copra from the world marker and thus incurred additional expenses.

Hence, this action is filed by Pacific. Singzon, in defense, filed a motion to dismiss on the ground that Pacific Vegetable Oil Corp. (Pacific) failed to obtain license to transact business in the Philippines and consequently, it had no personality to file the action. RTC denied the motion. It also denied MR. However, the Court of Appeals reversed and dismissed the case holding that Pacific had no personality to institute the present case even if it afterwards obtained a license to transact business upon the theory that this belated act did not have the effect of curing the defect.

Issue: W/N appellant transacted business in the Philippines in contemplation of law?

Decision: No, it was transacted in the US.

It appears from the facts that the copra in question was actually sold by the defendant to the plaintiff in the US. It also appears that the contract was entered into in the US by appellee‘s broker and appellant‘s representatives. It further appears that the payment of the price was to be made at San Francisco, California, through a letter of credit to be opened at the Bank of California. And with respect to the delivery of copra, it likewise appears that the price agreed upon was $142 per 2,000 lbs., c.i.f. Pacific Coast. This means that the vendor was to pay not only the cost of the goods, but also the freight and insurance expenses, and, it was judicially interpreted, this is taken to indicate that the delivery is to be made at the port of destination. It is therefore cleat that the contract covering the copra has not only entered into in the US but it was agreed to be consummated there. It follows that Pacific has not transacted business in the Philippines in contemplation of Sections 68 and 69 of the Corporation Law which require any foreign corporation to obtain a license before it could transact business, or before it could have personality to file suit in the Philippines.

It appearing that Pacific has not transacted business in the Philippines and as such it is not required to obtain a license before acquiring personality to bring court action, it may be stated that the appellant, even if a foreign corporation, can maintain the present action because, as aptly said by this Court, ―it was never the purpose of the Legislature to exclude a foreign corporation which happens to obtain an isolated order for business in the Philippines, from securing redress in the Philippine courts, and thus, in effect, to permit persons to avoid their contracts made with such foreign corporation.‖ Wherefore, the decision appealed from is reversed. Pacific is entitled to prosecute its claim in the Philippine courts against Singzon.

Republic of the Philippines SUPREME COURT

SECOND DIVISION

G.R. No. 122463 December 19, 2005

RUDOLF LIETZ, INC., Petitioner, vs. THE COURT OF APPEALS, AGAPITO BURIOL, TIZIANA TURATELLO & PAOLA SANI, Respondents.

D E C I S I O N

Tinga, J.:

This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court, praying for the annulment of the Decision 1 dated April 17, 1995 and the Resolution 2 dated October 25, 1995 of the Court of Appeals in CA-G.R. CV No. 38854. The Court of Appeals affirmed the Decision 3 in Civil Case No. 2164 of the Regional Trial Court (RTC), Branch 48, of Palawan and Puerto Princesa City with the modification that herein respondents Tiziana Turatello and Paola Sani are entitled to damages, attorney‘s fees, and litigation expenses.

The dispositive portion of the RTC Decision reads:

WHEREFORE, in view of the foregoing and as prayed for by the defendants, the instant complaint is hereby DISMISSED. Defendant‘s counterclaim is likewise DISMISSED. Plaintiff, however, is ordered to pay defendant Turatello and Sani‘s counsel the sum of ₱3,010.38 from August 9, 1990 until fully paid representing the expenses incurred by said counsel when the trial was cancelled due to the non-appearance of plaintiff‘s witnesses. With costs against the plaintiff.

SO ORDERED. 4

As culled from the records, the following antecedents appear:

Respondent Agapito Buriol previously owned a parcel of unregistered land situated at Capsalay Island, Port Barton, San Vicente, Palawan. On August 15, 1986, respondent Buriol entered into a lease agreement with Flavia Turatello and respondents Turatello and Sani, all Italian citizens, involving one (1) hectare of respondent Buriol‘s property. The lease agreement was for a period of 25 years, renewable for another 25 years. The lessees took possession of the land after paying respondent Buriol a down payment of ₱10,000.00. 5 The lease agreement, however, was reduced into writing only in January 1987.

On November 17, 1986, respondent Buriol sold to petitioner Rudolf Lietz, Inc. the same parcel of land for the amount of ₱30,000.00. The Deed of Absolute Sale embodying the agreement described the land as follows:

A parcel of land, consisting of FIVE (5) hectares, more or less, a portion of that parcel of land

declared in the name of Agapito Buriol, under Tax Declaration No. 0021, revised in the year 1985,

together with all improvements thereon, situated at the Island of Capsalay, Barangay Port Barton, municipality of San Vicente, province of Palawan which segregated from the whole parcel described in said tax declaration, has the following superficial boundaries: NORTH, Sec. 01-017; and remaining property of the vendor; EAST, by Seashore; SOUTH, 01-020; and WEST, by 01- 018 (now Elizabeth Lietz). 6

Petitioner later discovered that respondent Buriol owned only four (4) hectares, and with one more hectare covered by lease, only three (3) hectares were actually delivered to petitioner. Thus, petitioner instituted on April 3, 1989 a complaint for Annulment of Lease with Recovery of Possession with Injunction and Damages against respondents and Flavia Turatello before the RTC. The complaint alleged that with evident bad faith and malice, respondent Buriol sold to petitioner five (5) hectares of land when respondent Buriol knew for a fact that he owned only four (4) hectares and managed to lease one more hectare to Flavia Turatello and respondents Tiziana Turatello and Paola Sani. The complaint sought the issuance of a restraining order and a writ of preliminary injunction to prevent Flavia Turatello and respondents Turatello and Sani from introducing improvements on the property, the annulment of the lease agreement between respondents, and the restoration of the amount paid by petitioner in excess of the value of the property sold to him. Except for Flavia Turatello, respondents filed separate answers raising similar defenses of lack of cause of action and lack of jurisdiction over the action for recovery of possession. Respondents Turatello and Sani also prayed for the award of damages and attorney‘s fees. 7

After trial on the merits, the trial court rendered judgment on May 27, 1992, dismissing both petitioner‘s complaint and respondents‘ counterclaim for damages. Petitioner and respondents Turatello and Sani separately appealed the RTC Decision to the Court of Appeals, which affirmed the dismissal of petitioner‘s complaint and awarded respondents Turatello and Sani damages and attorney‘s fees. The dispositive portion of the Court of Appeals Decision reads:

WHEREFORE, the decision appealed from is hereby AFFIRMED, with the following modification:

Plaintiff-appellant Rudolf Lietz, Inc. is hereby (1) ordered to pay defendants-appellants Turatello and Sani, the sum of ₱100,000.00 as moral damages; (2) ₱100,000.00 as exemplary damages; (3) ₱135,728.73 as attorney‘s fees; and (4) ₱10,000.00 as litigation expenses.

SO ORDERED. 8

Petitioner brought to this Court the instant petition after the denial of its motion for reconsideration

of the Court of Appeal Decision. The instant petition imputes the following errors to the Court of

Appeals.

I. IN DEFENDING AGAPITO BURIOL‘S GOOD FAITH AND IN STATING THAT ASSUMING THAT HE (BURIOL) WAS IN BAD FAITH PETITIONER WAS SOLELY RESPONSIBLE FOR ITS INEXCUSABLE CREDULOUSNESS.

II. IN ASSERTING THAT ARTICLES 1542 AND 1539 OF THE NEW CIVIL CODE ARE,

RESPECTIVELY, APPLICABLE AND INAPPLICABLE IN THE CASE AT BAR.

III. IN NOT GRANTING PETITIONER‘S CLAIM FOR ACTUAL AND EXEMPLARY DAMAGES.

IV. IN GRANTING RESPONDENTS TIZIANA TURATELLO AND PAOLA SANI EXHORBITANT

[sic] AMOUNTS AS DAMAGES WHICH ARE EVEN BEREFT OF EVIDENTIARY BASIS. 9

Essentially, only two main issues confront this Court, namely: (i) whether or not petitioner is entitled to the delivery of the entire five hectares or its equivalent, and (ii) whether or not damages may be awarded to either party.

Petitioner contends that it is entitled to the corresponding reduction of the purchase price because the agreement was for the sale of five (5) hectares although respondent Buriol owned only four (4) hectares. As in its appeal to the Court of Appeals, petitioner anchors its argument on the second paragraph of Article 1539 of the Civil Code, which provides:

Art. 1539. The obligation to deliver the thing sold includes that of placing in the control of the vendee all that is mentioned in the contract, in conformity with the following rules:

If the sale of real estate should be made with a statement of its area, at the rate of a certain price

for a unit of measure or number, the vendor shall be obliged to deliver to the vendee, if the latter should demand it, all that may have been stated in the contract; but, should this be not possible, the vendee may choose between a proportional reduction of the price and the rescission of the

contract, provided that, in the latter case, the lack in the area be not less than one-tenth of that

stated.

.

.

.

.

The Court of Appeals Decision, however, declared as inapplicable the abovequoted provision and instead ruled that petitioner is no longer entitled to a reduction in price based on the provisions of Article 1542 of the Civil Code, which read:

Art. 1542. In the sale of real estate, made for a lump sum and not at the rate of a certain sum for a unit of measure or number, there shall be no increase or decrease of the price, although there be

a greater or lesser area or number than that stated in the contract.

The same rule shall be applied when two or more immovables are sold for a single price; but if, besides mentioning the boundaries, which is indispensable in every conveyance of real estate, its area or number should be designated in the contract, the vendor shall be bound to deliver all that is included within said boundaries, even when it exceeds the area or number specified in the contract; and, should he not be able to do so, he shall suffer a reduction in the price, in proportion to what is lacking in the area or number, unless the contract is rescinded because the vendee does not accede to the failure to deliver what has been stipulated.

Article 1539 governs a sale of immovable by the unit, that is, at a stated rate per unit area. In a unit price contract, the statement of area of immovable is not conclusive and the price may be reduced or increased depending on the area actually delivered. If the vendor delivers less than the

area agreed upon, the vendee may oblige the vendor to deliver all that may be stated in the contract or demand for the proportionate reduction of the purchase price if delivery is not possible.

the vendor delivers more than the area stated in the contract, the vendee has the option to accept only the amount agreed upon or to accept the whole area, provided he pays for the additional area at the contract rate. 10

If

In some instances, a sale of an immovable may be made for a lump sum and not at a rate per unit. The parties agree on a stated purchase price for an immovable the area of which may be declared based on an estimate or where both the area and boundaries are stated.

In the case where the area of the immovable is stated in the contract based on an estimate, the actual area delivered may not measure up exactly with the area stated in the contract. According to Article 1542 11 of the Civil Code, in the sale of real estate, made for a lump sum and not at the rate of a certain sum for a unit of measure or number, there shall be no increase or decrease of the price although there be a greater or lesser area or number than that stated in the contract. However, the discrepancy must not be substantial. A vendee of land, when sold in gross or with the description "more or less" with reference to its area, does not thereby ipso facto take all risk of quantity in the land. The use of "more or less" or similar words in designating quantity covers only

a

reasonable excess or deficiency. 12

Where both the area and the boundaries of the immovable are declared, the area covered within the boundaries of the immovable prevails over the stated area. In cases of conflict between areas and boundaries, it is the latter which should prevail. What really defines a piece of ground is not the area, calculated with more or less certainty, mentioned in its description, but the boundaries therein laid down, as enclosing the land and indicating its limits. In a contract of sale of land in a mass, it is well established that the specific boundaries stated in the contract must control over any statement with respect to the area contained within its boundaries. It is not of vital consequence that a deed or contract of sale of land should disclose the area with mathematical accuracy. It is sufficient if its extent is objectively indicated with sufficient precision to enable one to identify it. An error as to the superficial area is immaterial. 13 Thus, the obligation of the vendor is to deliver everything within the boundaries, inasmuch as it is the entirety thereof that distinguishes the determinate object. 14

As correctly noted by the trial court and the Court of Appeals, the sale between petitioner and respondent Buriol involving the latter‘s property is one made for a lump sum. The Deed of Absolute Sale shows that the parties agreed on the purchase price on a predetermined area of five hectares within the specified boundaries and not based on a particular rate per area. In accordance with Article 1542, there shall be no reduction in the purchase price even if the area delivered to petitioner is less than that stated in the contract. In the instant case, the area within the boundaries as stated in the contract shall control over the area agreed upon in the contract.

The Court rejects petitioner‘s contention that the property‘s boundaries as stated in the Deed of Absolute Sale are superficial and unintelligible and, therefore, cannot prevail over the area stated in the contract. First, as pointed out by the Court of Appeals, at an ocular inspection prior to the perfection of the contract of sale, respondent Buriol pointed to petitioner the boundaries of the

property. Hence, petitioner gained a fair estimate of the area of the property sold to him. Second, petitioner cannot now assail the contents of the Deed of Absolute Sale, particularly the description of the boundaries of the property, because petitioner‘s subscription to the Deed of Absolute Saleindicates his assent to the correct description of the boundaries of the property.

Petitioner also asserts that respondent Buriol is guilty of misleading petitioner into believing that the latter was buying five hectares when he knew prior to the sale that he owned only four hectares. The review of the circumstances of the alleged misrepresentation is factual and, therefore, beyond the province of the Court. Besides, this issue had already been raised before and passed upon by the trial court and the Court of Appeals. The factual finding of the courts below that no sufficient evidence supports petitioner‘s allegation of misrepresentation is binding on the Court.

The Court of Appeals reversed the trial court‘s dismissal of respondents Turatello and Sani‘s counterclaim for moral and exemplary damages, attorney‘s fees and litigation expenses. In awarding moral damages in the amount of ₱100,000 in favor of Turatello and Sani, the Court of Appeals justified the award to alleviate the suffering caused by petitioner‘s unfounded civil action. The filing alone of a civil action should not be a ground for an award of moral damages in the same way that a clearly unfounded civil action is not among the grounds for moral damages. 15

Exemplary or corrective damages are imposed, by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages. 16 With the deletion of the award for moral damages, there is no basis for the award of exemplary damages.

WHEREFORE, the instant petition for review on certiorari is GRANTED in PART. The Court of Appeals Decision in CA-G.R. CV No. 38854 is AFFIRMED with the MODIFICATION that the award of moral and exemplary damages is DELETED.

SO ORDERED.

THIRD DIVISION

G.R. No. 128573

January 13, 2003

NAAWAN COMMUNITY RURAL BANK INC., petitioner, vs. THE COURT OF APPEALS and SPOUSES ALFREDO AND ANNABELLE LUMO, respondents.

CORONA, J.:

Under the established principles of land registration, a person dealing with registered land may generally rely on the correctness of a certificate of title and the law will in no way oblige him to go beyond it to determine the legal status of the property.

Before us is a Petition for Review on Certiorari challenging the February 7, 1997 Decision 1 of the Court of Appeals in CA-G.R. CV No. 55149, which in turn affirmed the decision 2 of the Regional Trial Court of Misamis Oriental, Branch 18 as follows:

"WHEREFORE, the plaintiffs-spouses are adjudged the absolute owners and possessors of the properties in question (Lot 18583, under TCT No. T-50134, and all improvements thereon) and quieting title thereto as against any and all adverse claims of the defendant. Further, the sheriff's certificate of sale, Exhibit 4; 4-A; Sheriff's deed of final conveyance, Exhibit 5, 5-A; Tax Declarations No. 71211, Exhibit 7, and any and all instrument, record, claim, encumbrance or proceeding in favor of the defendant, as against the plaintiffs, and their predecessor-in-interest, which may be extant in the office of the Register of Deeds of Province of Misamis Oriental, and of Cagayan de Oro City, and in the City Assessor's Office of Cagayan de Oro City, are declared as invalid and ineffective as against the plaintiffs' title.

"The counterclaim is dismissed for lack of merit.

"SO ORDERED." 3

The facts of the case, as culled from the records, are as follows:

On April 30, 1988, a certain Guillermo Comayas offered to sell to private respondent-spouses Alfredo and Annabelle Lumo, a house and lot measuring 340 square meters located at Pinikitan, Camaman-an, Cagayan de Oro City.

Wanting to buy said house and lot, private respondents made inquiries at the Office of the Register of Deeds of Cagayan de Oro City where the property is located and the Bureau of Lands on the legal status of the vendor's title. They found out that the property was mortgaged for P8,000 to a certain Mrs. Galupo and that the owner's copy of the Certificate of Title to said property was in her possession.

Private respondents directed Guillermo Comayas to redeem the property from Galupo at their expense, giving the amount of P10,000 to Comayas for that purpose.

On May 30, 1988, a release of the adverse claim of Galupo was annotated on TCT No. T-41499 which covered the subject property.

In the meantime, on May 17, 1988, even before the release of Galupo's adverse claim, private respondents and Guillermo Comayas, executed a deed of absolute sale. The subject property was allegedly sold for P125,000 but the deed of sale reflected the amount of only P30,000 which was the amount private respondents were ready to pay at the time of the execution of said deed, the balance payable by installment.

On June 9, 1988, the deed of absolute sale was registered and inscribed on TCT No. T-41499 and, on even date, TCT No. T-50134 was issued in favor of private respondents.

After obtaining their TCT, private respondents requested the issuance of a new tax declaration certificate in their names. However, they were surprised to learn from the City Assessor's Office that the property was also declared for tax purposes in the name of petitioner Naawan Community Rural Bank Inc. Records in the City Assessor's Office revealed that, for the lot covered by TCT No. T-50134, Alfredo Lumo's T/D # 83324 bore the note: "This lot is also declared in the name of Naawan Community Rural Bank Inc. under T/D # 71210".

Apparently, on February 7, 1983, Guillermo Comayas obtained a P15,000 loan from petitioner Bank using the subject property as security. At the time said contract of mortgage was entered into, the subject property was then an unregistered parcel of residential land, tax-declared in the name of a certain Sergio A. Balibay while the residential one-storey house was tax-declared in the name of Comayas.

Balibay executed a special power of attorney authorizing Comayas to borrow money and use the subject lot as security. But the Deed of Real Estate Mortgage and the Special Power of Attorney were recorded in the registration book of the Province of Misamis Oriental, not in the registration book of Cagayan de Oro City. It appears that, when the registration was made, there was only one Register of Deeds for the entire province of Misamis Oriental, including Cagayan de Oro City. It was only in 1985 when the Office of the Register of Deeds for Cagayan de Oro City was established separately from the Office of the Register of Deeds for the Province of Misamis Oriental.

For failure of Comayas to pay, the real estate mortgage was foreclosed and the subject property sold at a public auction to the mortgagee Naawan Community Rural Bank as the highest bidder in the amount of P16,031.35. Thereafter, the sheriff's certificate of sale was issued and registered under Act 3344 in the Register of Deeds of the Province of Misamis Oriental.

On April 17, 1984, the subject property was registered in original proceedings under the Land Registration Act. Title was entered in the registration book of the Register of Deeds of Cagayan de Oro City as Original Certificate of Title No. 0-820, pursuant to Decree No. N-189413.

On July 23, 1984, Transfer Certificate of Title No. T-41499 in the name of Guillermo P. Comayas was entered in the Register of Deeds of Cagayan de Oro City.

Meanwhile, on September 5, 1986, the period for redemption of the foreclosed subject property lapsed and the MTCC Deputy Sheriff of Cagayan de Oro City issued and delivered to petitioner bank the sheriff's deed of final conveyance. This time, the deed was registered under Act 3344 and recorded in the registration book of the Register of Deeds of Cagayan de Oro City.

By virtue of said deed, petitioner Bank obtained a tax declaration for the subject house and lot.

Thereafter, petitioner Bank instituted an action for ejectment against Comayas before the MTCC which decided in its favor. On appeal, the Regional Trial Court affirmed the decision of the MTCC in a decision dated April 13, 1988.

On January 27, 1989, the Regional Trial Court issued an order for the issuance of a writ of execution of its judgment. The MTCC, being the court of origin, promptly issued said writ.

However, when the writ was served, the property was no longer occupied by Comayas but herein private respondents, the spouses Lumo who had, as earlier mentioned, bought it from Comayas on May 17, 1988.

Alarmed by the prospect of being ejected from their home, private respondents filed an action for quieting of title which was docketed as Civil Case No. 89-138. After trial, the Regional Trial Court rendered a decision declaring private respondents as purchasers for value and in good faith, and consequently declaring them as the absolute owners and possessors of the subject house and lot. Petitioner appealed to the Court of Appeals which in turn affirmed the trial court's decision.

Hence, this petition.

Petitioner raises the following issues:

I. WHETHER OR NOT THE SHERIFF'S DEED OF FINAL CONVEYANCE WAS DULY EXECUTED AND REGISTERED IN THE REGISTER OF DEEDS OF CAGAYAN DE ORO CITY ON DECEMBER 2, 1986;

II. WHETHER OR NOT REGISTRATION OF SHERIFF'S DEED OF FINAL CONVEYANCE IN THE PROPER REGISTRY OF DEEDS COULD BE EFFECTIVE AS AGAINST SPOUSES LUMO.

Both parties cite Article 1544 of the Civil Code which governs the double sale of immovable property.

Article 1544 provides:

Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property."

Petitioner bank contends that the earlier registration of the sheriff's deed of final conveyance in the day book under Act 3344 should prevail over the later registration of private respondents' deed of absolute sale under Act 496, 4 as amended by the Property Registration Decree, PD 1529.

This contention has no leg to stand on. It has been held that, where a person claims to have superior proprietary rights over another on the ground that he derived his title from a sheriff's sale registered in the Registry of Property, Article 1473 (now Article 1544) of the Civil Code will apply only if said execution sale of real estate is registered under Act 496. 5

Unfortunately, the subject property was still untitled when it was already acquired by petitioner bank by virtue of a final deed of conveyance. On the other hand, when private respondents purchased the same property, it was covered by the Torrens System.

Petitioner also relies on the case of Bautista vs. Fule 6 where the Court ruled that the registration of an instrument involving unregistered land in the Registry of Deeds creates constructive notice and binds third person who may subsequently deal with the same property.

However, a close scrutiny of the records reveals that, at the time of the execution and delivery of the sheriff's deed of final conveyance on September 5, 1986, the disputed property was already covered by the Land Registration Act and Original Certificate of Title No. 0-820 pursuant to Decree No. N189413 was likewise already entered in the registration book of the Register of Deeds of Cagayan De Oro City as of April 17, 1984.

Thus, from April 17, 1984, the subject property was already under the operation of the Torrens System. Under the said system, registration is the operative act that gives validity to the transfer or creates a lien upon the land.

Moreover, the issuance of a certificate of title had the effect of relieving the land of all claims except those noted thereon. Accordingly, private respondents, in dealing with the subject registered land, were not required by law to go beyond the register to determine the legal condition of the property. They were only charged with notice of such burdens on the property as were noted on the register or the certificate of title. To have required them to do more would have been to defeat the primary object of the Torrens System which is to make the Torrens Title indefeasible and valid against the whole world.

Private respondents posit that, even assuming that the sheriff's deed of final conveyance in favor of petitioner bank was duly recorded in the day book of the Register of Deeds under Act 3344, ownership of the subject real property would still be theirs as purchasers in good faith because they registered the sale first under the Property Registration Decree.

The rights created by the above-stated statute of course do not and cannot accrue under an inscription in bad faith. Mere registration of title in case of double sale is not enough; good faith must concur with the registration. 7

Petitioner contends that the due and proper registration of the sheriff's deed of final conveyance on December 2, 1986 amounted to constructive notice to private respondents. Thus, when private respondents bought the subject property on May 17, 1988, they were deemed to have purchased the said property with the knowledge that it was already registered in the name of petitioner bank.

Thus, the only issue left to be resolved is whether or not private respondents could be considered as buyers in good faith.

The "priority in time" principle being invoked by petitioner bank is misplaced because its registration referred to land not within the Torrens System but under Act 3344. On the other hand, when private respondents bought the subject property, the same was already registered under the Torrens System. It is a well-known rule in this jurisdiction that persons dealing with registered land have the legal right to rely on the face of the Torrens Certificate of Title and to dispense with the need to inquire further, except when the party concerned has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry.

8

Did private respondents exercise the required diligence in ascertaining the legal condition of the title to the subject property so as to be considered as innocent purchasers for value and in good faith?

We answer in the affirmative.

Before private respondents bought the subject property from Guillermo Comayas, inquiries were made with the Registry of Deeds and the Bureau of Lands regarding the status of the vendor's title. No liens or encumbrances were found to have been annotated on the certificate of title. Neither were private respondents aware of any adverse claim or lien on the property other than the adverse claim of a certain Geneva Galupo to whom Guillermo Comayas had mortgaged the subject property. But, as already mentioned, the claim of Galupo was eventually settled and the adverse claim previously annotated on the title cancelled. Thus, having made the necessary inquiries, private respondents did not have to go beyond the certificate of title. Otherwise, the efficacy and conclusiveness of the Torrens Certificate of Title would be rendered futile and nugatory.

Considering therefore that private respondents exercised the diligence required by law in ascertaining the legal status of the Torrens title of Guillermo Comayas over the subject property and found no flaws therein, they should be considered as innocent purchasers for value and in good faith.

Accordingly, the appealed judgment of the appellate court upholding private respondents Alfredo and Annabelle Lumo as the true and rightful owners of the disputed property is affirmed.

WHEREFORE, petition is hereby DENIED.

SO ORDERED.

Puno, Panganiban, Sandoval-Gutierrez, and Carpio-Morales JJ ., concur.

FIRST DIVISION

G.R. No. 167412

February 22, 2006

JUANITA NAVAL, Petitioner, vs. COURT OF APPEALS, JUANITO CAMALLA, JAIME NACION, CONRADO BALILA, ESTER MOYA and PORFIRIA AGUIRRE, Respondents.

D E C I S I O N

YNARES-SANTIAGO, J.:

This petition for review assails the Decision 1 of the Court of Appeals dated December 14, 2004, in CA-G.R. SP No. 86736, which reversed the Decision 2 of the Regional Trial Court (RTC) of Naga City, Branch 26, in Civil Case No. 2004-0054 affirming the Decision 3 of the Municipal Circuit Trial Court (MCTC) of Magarao-Canaman, Camarines Sur, as well as the Resolution 4 dated February 17, 2005 denying petitioner‘s motion for reconsideration.

The facts of the case are as follows:

On December 2, 1969, Ildefonso A. Naval sold a parcel of land located in Sto. Tomas, Magarao, Camarines Sur, consisting of 858 sq. m. to Gregorio B. Galarosa. The sale was recorded in the Registry of Property of the Registry of Deeds of Camarines Sur on December 3, 1969 pursuant to Act No. 3344, the law governing registrations of all instruments on unregistered lands. 5

Subsequently, Gregorio sold portions of the land to respondents Conrado Rodrigo Balilla 6 on November 4, 1976, Jaime Nacion 7 on January 10, 1977 and spouses Ireneo and Ester Moya 8 in July 1977, and Juanito Camalla 9 on September 4, 1987. All buyers occupied the portion they bought, built improvements thereon, and paid the taxes due thereto. 10

The controversy arose when petitioner Juanita Naval, the great granddaughter of Ildefonso, was issued on April 1, 1975 by the Register of Deeds of Camarines Sur an Original Certificate of Title (OCT) No. RP-5386 (29791), covering 733 sq. m. of the subject land. 11 She claimed that she bought the subject land from Ildefonso in 1972. 12

On November 10, 1977, petitioner filed a complaint for recovery of possession against Bartolome Aguirre, Conrado Balila, 13 Ireneo Moya, Jaime Nacion and Domingo Nacion, which was docketed as Civil Case No. 306. 14 However, the case was dismissed 15 without prejudice 16 for failure to prosecute the action for an unreasonable length of time.

Almost 20 years later, or on April 21, 1997, petitioner re-filed the complaint for recovery of possession with damages before the MCTC of Magarao-Canaman, Camarines Sur, against Juanita 17 Camalla, Diosdado Balila, Conrado Balila, Forferia 18 Aguirre, Jaime Nacion and Ester Moya. The case was docketed as Civil Case No. 994.

After trial, the MCTC rendered its decision, the dispositive portion reads as follows:

WHEREFORE, for all the foregoing consideration, decision is hereby rendered in favor of the plaintiff and against defendants:

1) Declaring the plaintiff to be the legal owner of the land as described in paragraph 2 of the complaint;

2) Ordering defendants Juanito Camalla, Diosdado Balila, Conrado Balila, Porferia Aguirre and Jaime Nacion to vacate the property in question and to deliver its possession to the plaintiff;

3) Ordering Ester Moya to vacate the fifty (50) square meters occupied by her and to relinquish its possession to the plaintiff;

4) Dismissing the respective claims for damages of the parties.

Pronouncing no costs.

SO ORDERED. 19

Aggrieved, respondents appealed the decision to the RTC of Naga City, which affirmed in toto the assailed decision. 20

Respondents thereafter elevated the case to the Court of Appeals via Rule 42 of the Rules of Court. Finding the prior registration of the deed of sale between Ildefonso and Gregorio with the Register of Deeds as a constructive notice to subsequent buyers, the appellate court reversed the decision of the RTC. Thus,

WHEREFORE, premises considered, the present petition is hereby GRANTED. The appealed decision of the court a quo is hereby REVERSED and SET ASIDE and a new judgment is hereby entered dismissing respondent's complaint for recovery of possession with damages. Petitioners' counterclaim for damages is likewise dismissed for lack of legal and factual bases.

No pronouncement as to costs.

SO ORDERED. 21

Hence, this petition assigning the following errors:

I

THE COURT OF APPEALS ERRED IN DECLARING THAT GREGORIO GALAROSA HAS RIGHTFULLY ACQUIRED OWNERSHIP OVER THE LOT COVERED BY OCT RP

#5386 (29791) AND DECLARING HIM TO HAVE POSSESSED THE LOT BEFORE THE ALLEGED SALES TO RESPONDENTS.

II

THE COURT OF APPEALS ERRED IN HOLDING THAT THE PAYMENT OF TAXES BY

RESPONDENTS

WERE (sic) EVIDENCE

OF LAWFUL POSSESSION AND

OWNERSHIP.

III

THE COURT OF APPEALS ERRED IN DECLARING THAT THE LOTS CLAIMED BY THE RESPONDENTS HAVE BEEN POSSESSED BY THEM IN GOOD FAITH DESPITE THEIR KNOWLEDGE OF THE EXISTENCE OF OCT RP #5386(29791). 22

Petitioner claims that she has superior rights over the subject land because the sale between Ildefonso and Gregorio and the subsequent registration thereof with the Register of Deeds had no legal effect since the subject land was declared in the name of Agrifina Avila while the tax declaration cancelled by Gregorio‘s was that of Gregorio Boñaga. Petitioner thus assails the right claimed by Gregorio over the subject land from which the respondents derived their respective claims. 23

On the other hand, respondents contend that the registered sale by Ildefonso to Gregorio in 1969 of the subject land, from whom they derive their claims, vests them with better right than the petitioner; that registration under Act No. 3344 served as constructive notice to the whole world, including the petitioner, who claimed to have purchased the subject land from Ildefonso in 1972, but failed to present evidence to prove such acquisition. 24

We deny the petition.

Prefatorily, a perusal of the records reveals that during the trial, petitioner vigorously asserted that the subject land was the exclusive property of Ildefonso who sold it to her in 1972. 25 However, in this appeal, petitioner assails the ownership not only of Gregorio but also of Ildefonso by alleging that at the time the latter sold the land to Gregorio, the same was declared in the name of Agrifina Avila. When a party adopts a certain theory in the court below, he is not allowed to change his theory on appeal, for to allow him to do so would not only be unfair to the other party, but it would also be offensive to the basic rules of fair play, justice and due process. 26

In this appeal, the issue for resolution is who has the superior right to a parcel of land sold to different buyers at different times by its former owner.

It is not disputed that the subject land belonged to Ildefonso and that it was not registered under the Torrens System 27 when it was sold to Gregorio in 1969 and to the petitioner in 1972. Further, the deed of sale between Ildefonso and Gregorio was registered with the Register of Deeds of Camarines Sur pursuant to Act No. 3344, as shown by Inscription No. 54609 dated December 3, 1969, Page 119, Volume 186, File No. 55409 at the back thereof.

In holding that respondents have a better right to possess the subject land in view of the bona fide registration of the sale with the Register of Deeds of Camarines Sur by Ildefonso and Gregorio, the Court of Appeals applied Article 1544 of the Civil Code, which provides:

ART. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith.

While we agree with the appellate court that respondents have superior right over the petitioner on the subject property, we find Article 1544 inapplicable to the case at bar since the subject land was unregistered at the time of the first sale. The registration contemplated under this provision has been held to refer to registration under the Torrens System, which considers the act of registration as the operative act that binds the land. 28 Thus, in Carumba v. Court of Appeals, 29 we held that Article 1544 of the Civil Code has no application to land not registered under Torrens System.

The law applicable therefore is Act No. 3344, which provides for the registration of all instruments on land neither covered by the Spanish Mortgage Law nor the Torrens System. Under this law, registration by the first buyer is constructive notice to the second buyer that can defeat his right as such buyer in good faith.

Applying the law, we held in Bautista v. Fule 30 that the registration of an instrument involving unregistered land in the Registry of Deeds creates constructive notice and binds third person who may subsequently deal with the same property. We also held in Bayoca v. Nogales 31 that:

Verily, there is absence of prior registration in good faith by petitioners of the second sale in their favor. As stated in the Santiago case, registration by the first buyer under Act No. 3344 can have the effect of constructive notice to the second buyer that can defeat his right as such buyer. On account of the undisputed fact of registration under Act No. 3344 by [the first buyers], necessarily, there is absent good faith in the registration of the sale by the [second buyers] for which they had been issued certificates of title in their names. It follows that their title to the land cannot be upheld. x x x.

Even if petitioner argues that she purchased and registered the subject land in good faith and without knowledge of any adverse claim thereto, respondents still have superior right over the disputed property. We held in Rayos v. Reyes 32 that:

"[T]he issue of good faith or bad faith of the buyer is relevant only where the subject of the sale is registered land and the purchaser is buying the same from the registered owner whose title to the

land is clean x x x in such case the purchaser who relies on the clean title of the registered owner is protected if he is a purchaser in good faith for value." Since the properties in question are unregistered lands, petitioners as subsequent buyers thereof did so at their peril. Their claim of having bought the land in good faith, i.e., without notice that some other person has a right to or interest in the property, would not protect them if it turns out, as it actually did in this case, that their seller did not own the property at the time of the sale.

It is an established principle that no one can give what one does not have, nemo dat quod non habet. Accordingly, one can sell only what one owns or is authorized to sell, and the buyer can acquire no more than what the seller can transfer legally. 33 In the case at bar, since Ildefonso no longer owned the subject land at the time of the sale to the petitioner, he had nothing to sell and the latter did not acquire any right to it.

Even if we apply Article 1544, the facts would nonetheless show that respondents and their predecessors-in-interest registered first the source of their ownership and possession, i.e., the 1969 deed of sale, and possessed the subject land at the earliest time. Applying the doctrine of "priority in time, priority in rights" or "prius tempore, potior jure," respondents are entitled to the ownership and possession of the subject land. 34

True, a certificate of title, once registered, should not thereafter be impugned, altered, changed, modified, enlarged or diminished except in a direct proceeding permitted by law. 35 Moreover, Section 32 of Presidential Decree No. 1529 provides that "[u]pon the expiration of said period of one year, the decree of registration and the certificate of title shall become incontrovertible."

However, it does not deprive an aggrieved party of a remedy in law. What cannot be collaterally attacked is the certificate of title and not the title or ownership which is represented by such certificate. Ownership is different from a certificate of title. 36 The fact that petitioner was able to secure a title in her name did not operate to vest ownership upon her of the subject land. Registration of a piece of land under the Torrens System does not create or vest title, because it is not a mode of acquiring ownership. A certificate of title is merely an evidence of ownership or title over the particular property described therein. 37 It cannot be used to protect a usurper from the true owner; nor can it be used as a shield for the commission of fraud; neither does it permit one to enrich himself at the expense of others. 38 Its issuance in favor of a particular person does not foreclose the possibility that the real property may be co-owned with persons not named in the certificate, or that it may be held in trust for another person by the registered owner. 39

As correctly held by the Court of Appeals, notwithstanding the indefeasibility of the Torrens title, the registered owner may still be compelled to reconvey the registered property to its true owners. The rationale for the rule is that reconveyance does not set aside or re-subject to review the findings of fact of the Bureau of Lands. In an action for reconveyance, the decree of registration is respected as incontrovertible. What is sought instead is the transfer of the property or its title which has been wrongfully or erroneously registered in another person‘s name, to its rightful or legal owner, or to the one with a better right. 40

Finally, the Court of Appeals correctly held that an action for reconveyance does not prescribe when the plaintiff is in possession of the land to be reconveyed, as in this case. Thus, in Leyson v. Bontuyan: 41

x x x [T]his Court declared that an action for reconveyance based on fraud is imprescriptible where

the plaintiff is in possession of the property subject of the acts. In Vda. de Cabrera v. Court of Appeals, the Court held:

[A]n action for reconveyance of a parcel of land based on implied or constructive trust prescribes in ten years, the point of reference being the date of registration of the deed or the date of the issuance of the certificate of title over the property, but this rule applies only when the plaintiff or the person enforcing the trust is not in possession of the property, since if a person claiming to be the owner thereof is in actual possession of the property, as the defendants are in the instant case, the right to seek reconveyance, which in effect seeks to quiet title to the property, does not prescribe. The reason for this is that one who is in actual possession of a piece of land claiming to be the owner thereof may wait until his possession is disturbed or his title is attacked before taking steps to vindicate his right, the reason for the rule being, that his undisturbed possession gives him a continuing right to seek the aid of a court of equity to ascertain and determine the nature of the adverse claim of a third party and its effect on his own title, which right can be claimed only by one who is in possession.

Similarly, in the case of David v. Malay, the same pronouncement was reiterated by the Court:

There is settled jurisprudence that one who is in actual possession of a piece of land claiming to

be owner thereof may wait until his possession is disturbed or his title is attacked before taking steps to vindicate his right, the reason for the rule being, that his undisturbed possession gives

him a continuing right to seek the aid of the court of equity to ascertain and determine the nature of the adverse claim of a third party and its effect on his own title, which right can be claimed only by one who is in possession. No better situation can be conceived at the moment for Us to apply

possession of the litigated property for

no less than 30 years and was suddenly confronted with a claim that the land she had been

this rule on equity than that of herein petitioners whose

occupying and cultivating all these years, was titled in the name of a third person. We hold that in such a situation the right to quiet title to the property, to seek its reconveyance and annul any certificate of title covering it, accrued only from the time the one in possession was made aware of

a claim adverse to his own, and it is only then that the statutory period of prescription commences to run against such possessor.

The paramount reason for this exception is based on the theory that registration proceedings

could not be used as a shield for fraud. Moreover, to hold otherwise would be to put premium on land-grabbing and transgressing the broader principle in human relations that no person shall unjustly enrich himself at the expense of another.

WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision of the Court of Appeals dated December 14, 2004, in CA-G.R. SP No. 86736, dismissing petitioner‘s complaint for recovery of possession and respondents‘ counterclaim for damages for lack of legal and factual bases, and the Resolution dated February 17, 2005 denying the motion for reconsideration, are AFFIRMED.

SO ORDERED.

THIRD DIVISION

G.R. No. 121165

September 26, 2006

HON. DOMINADOR F. CARILO, Presiding Judge, R.T.C. XI-19 Digos, Davao del Sur, BONIFACIO J. GUYOT, Clerk of Court and Provincial Sheriff of Davao del Sur, ALFREDO C. SENOY, Deputy Prov. Sheriff assigned to R.T.C. XI-19 Digos, Davao del Sur, MARCOS D. RISONAR, JR., ., Registrar of Deeds of Davao del Sur, and MARIA GONZALES, petitioners, vs. HON. COURT OF APPEALS, MARIA PAZ DABON and ROSALINDA DABON, respondents.

QUISUMBING, J.:

R E S O L U T I O N

For review on certiorari is the Decision 1 dated February 22, 1995 of the Court of Appeals in CA- G.R. SP No. 23687, which annulled and set aside the judgment and orders of the Regional Trial Court (RTC) of Digos, Davao del Sur, Branch 19, in Civil Case No. 2647, Maria Gonzales v. Priscilla Manio and Jose Manio.

The facts as culled from the records are as follows:

On April 2, 1990, petitioner Maria Gonzales filed a complaint against the spouses Priscilla and Jose Manio with the RTC of Digos, Davao del Sur, Branch 19. Gonzales sought the execution of the deed of sale in her favor for the property she bought from Priscilla Manio. She also asked for damages and attorney's fees.

Gonzales alleged that on April 26, 1988, she paid P10,000 to Priscilla as downpayment on the P400,000 purchase price of the lot with improvements, since Priscilla had a special power of attorney from her son, Aristotle, the owner of the land. They also agreed that the balance would be paid within three months after the execution of the deed of sale. Yet, after the lapse of the period and despite repeated demands, Priscilla did not execute the deed of sale. Thus, Gonzales filed an action for specific performance against the spouses Priscilla and Jose Manio.

For failure to file an Answer, the Manios were declared in default and Gonzales was allowed to present evidence ex parte.

After trial, the court rendered judgment in favor of Gonzales, which we quote verbatim:

WHEREFORE, premises considered, it is hereby ordered that judgment is rendered in favor of plaintiff and against defendants, ordering defendants:

1) To execute the final deed of sale and transfer of the property mentioned in paragraph 4 above to plaintiff, or should the defendant refuse to execute the deed of sale, the Clerk of Court be directed to execute the same upon plaintiff's

depositing of the sum of P390,000.00 with the Clerk of Court as complete and valid payment thereof to defendant Priscilla Manio;

2) To pay plaintiff the sum of P100,000.00 for moral damages and P50,000.00 for exemplary damages;

3) To pay plaintiff the sum of P50,000.00 for attorney's fees plus P700.00 per appearances of plaintiff's counsel before this Honorable Court as appearance fees;

4) To pay plaintiff the sum of P5,000.00 as litigation expenses.

SO ORDERED. 2

Gonzales deposited with the Clerk of Court the P390,000 balance of the price and filed a motion for execution. 3 She later withdrew the motion because the trial court's decision was not properly served on the defendants. After numerous delays, the sheriff finally personally served a copy of the decision on Priscilla on August 4, 1990, at the ungodly hour of 12:00 midnight at Sitio Wilderness, Barangay Mount Carmel, Bayugan, Agusan del Sur. 4

Since there was no appeal, the trial court's decision became final and executory. But the writ of execution was not served upon the defendants, since according to the Sheriff's Return, the defendants could not be located. The sheriff, likewise, informed the trial court that the money judgment could be readily satisfied by the petitioner's cash deposit should the trial court grant the motion to release the cash deposit filed by Gonzales. 5

Subsequently, Gonzales filed a motion asking that the Clerk of Court be directed to be the one to execute a deed of conveyance. Gonzales also filed a motion to withdraw the cash deposit for the balance of the price to offset the award of damages. The trial court granted both motions but later modified the amount to P207,800.

On October 29, 1990, Gonzales filed a petition for the nullification of the Owner's Duplicate Certificate of Title No. 16658 and asked that a new certificate be issued in her name to give effect to the deed of conveyance since Priscilla refused to relinquish the owner's duplicate copy.

Consequently, the trial court declared the owner's duplicate copy of TCT No. 16658 void, and directed the City Civil Registrar to issue a new certificate of title in favor of Gonzales. The orders were reiterated in subsequent orders and TCT No. T-23690 was issued under the name of Gonzales.

On December 14, 1990, herein respondents Maria Paz Dabon and Rosalina Dabon, claiming to have bought the aforementioned lot from Aristotle Manio filed before the Court of Appeals a petition for annulment of judgment and orders of the RTC in Civil Case No. 2647. The case was docketed as CA G.R. SP No. 23687, entitled "Maria Paz Dabon and Rosalina Dabon v. Hon. Dominador F. Carillo, Presiding Judge, RTC Branch 19, Digos, Davao del Sur; Bonifacio J. Guyot, Clerk of Court and Provincial Sheriff of Davao del Sur; Alfredo C. Senoy, Deputy Prov. Sheriff

assigned to RTC Br. 19, Digos, Davao del Sur; Marcos D. Risonar, Jr., Registrar of Deeds of Davao del Sur; and Maria Gonzales." The Dabons alleged therein that the judgment of the trial court was void ab initio because of lack of jurisdiction over their persons, as the real parties in interest, and that they were fraudulently deprived of their right to due process. They also prayed for a Temporary Restraining Order and for Preliminary Prohibitory Injunction against Gonzales. They gave the trial court a notice of their action for the annulment of the judgment and subsequent orders in Civil Case No. 2647. 6

Meanwhile, Gonzales filed before the trial court a motion for the issuance of a writ of possession. The Dabons filed an opposition on the following grounds: (1) The writ of possession cannot be enforced because the defendants named in the writ, the Manios, were no longer in possession of the property; (2) They had bought the lot with the improvements therein and had taken possession, although they had not yet registered their ownership with the Register of Deeds; and (3) The court did not acquire jurisdiction over them as the real parties in interest.

On December 17, 1990, the Court of Appeals, without giving due course to the petition, issued a resolution restraining the trial court from implementing its Decision dated June 19, 1990 7 and its subsequent orders thereto in Civil Case No. 2647 until further notice from the Court of Appeals. It also required Gonzales to file her Comment. 8

The Court of Appeals in a resolution denied the application for preliminary injunction and appointed a commissioner to receive evidence of the parties. 9

Following the Commissioner's report, the Court of Appeals found that (1) the contract of sale between Gonzales and Priscilla was unenforceable because the sale was evidenced by a handwritten note which was vague as to the amount and which was not notarized; (2) the trial court did not acquire jurisdiction over the indispensable parties; and (3) the proceedings were attended with fraud. The Court of Appeals nullified the judgment of the RTC in Civil Case No. 2647 and cancelled TCT No. T-23690. The dispositive portion of said judgment reads as follows:

WHEREFORE, premises considered, the questioned decision, dated June 19, 1990 (and all orders arising therefrom), of the Regional Trial Court (Branch 19) in Digos, Davao del Sur is hereby ANNULLED and SET ASIDEand the Transfer Certificate of Title No. T- 23690 which was issued thereafter declared null and void and ordered canceled. Costs against the private respondent.

SO ORDERED. 10

On July 17, 1995, Gonzales' Motion for Reconsideration was denied. Hence, the instant petition, assigning the following errors:

I

The Honorable Court of Appeals erred in not holding that the purchase of the disputed property by petitioner Maria Gonzales from Aristotle Manio thru the latter's mother and attorney-in-fact was a valid contract as between the contracting parties.

II

THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT PETITIONER MARIA GONZALES WAS IN GOOD FAITH IN BUYING THE DISPUTED PROPERTY FROM ARISTOTLE MANIO THRU THE LATTER'S MOTHER AND ATTORNEY-IN-FACT.

III

THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING IN THE INSTANT CASE THE DOCTRINE IN DOUBLE SALE UNDER ARTICLE 1544 OF THE CIVIL CODE OF THE PHILIPPINES.

IV

THE HONORABLE COURT OF APPEALS GRAVELY FAILED TO APPRECIATE THE FACT THAT PRIVATE RESPONDENTS' [PETITIONERS BELOW] CLAIM IS HIGHLY INCREDIBLE, IMPROBABLE, AND FRAUDULENT.

V

THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT PRIVATE RESPONDENTS MARIA PAZ DABON AND ROSALINA DABON HAVE NO RIGHT TO BRING THE INSTANT SUIT.

VI

COROLLARILY, THE HONORABLE COURT OF APPEALS ERRED IN NOT SUSTAINING PETITIONER MARIA GONZALES' [PRIVATE RESPONDENT BELOW] CLAIM FOR DAMAGES AGAINST THE PRIVATE RESPONDENTS [PETITIONERS BELOW]. 11

Simply, the threshold issues in this petition are: (1) whether the Court of Appeals erred in declaring the sale of the land to Gonzales by Priscilla invalid; (2) whether there was basis to annul the judgment of the RTC; and (3) whether the Dabons could file the action for annulment of judgment.

We shall discuss the issues jointly.

Prefatorily, we note that named as petitioners are Presiding Judge Dominador Carillo; Bonifacio Guyot, Alfredo Senoy, Clerk of Court and Deputy Sheriff of the same court, respectively; Marcos D. Risonar, Registrar of Deeds of Davao del Sur; and Maria Gonzales. In our view, petitioner Gonzales apparently had impleaded Judge Carillo, Guyot, Senoy and Risonar in this petition by merely reversing the designation of said public officers among the respondents below in the Court of Appeals, as now among the petitioners herein. Since they are not interested parties and would not benefit from any of the affirmative reliefs sought, only Maria Gonzales remains as the genuine party-petitioner in the instant case.

We now come to the main issues: (1) Was there sufficient basis to annul the judgment in Civil Case No. 2647? (2) Are the Dabons proper parties to file the petition for annulment of judgment?

Petitioner Gonzales contends that the respondents do not have standing before the Court of Appeals to file a petition for annulment of the judgment in Civil Case No. 2647 because respondents were not parties therein. Petitioner maintains that respondents have no right that could be adversely affected by the judgment because they are not the owners of the property. Petitioner claims that the Court of Appeals should have applied the doctrine of double sale to settle the issue of ownership and declare her the true owner of the property. Petitioner concludes that respondents not being the owners and are not real parties in interest in the complaint for specific performance have no right to bring the action for annulment of the judgment. According to petitioner Gonzales, she did not implead Aristotle as defendant in Civil Case No. 2647 since a decision against Priscilla, Aristotle's attorney-in-fact, would bind Aristotle also.

Respondents (Maria Paz and Rosalina Dabon) now insist that they are parties in interest as buyers, owners and possessors of the contested land and that they had been fraudulently deprived of their day in court during the proceedings in the trial court in Civil Case No. 2647. They have no remedy in law other than to file a case for the annulment of judgment of the trial court in said case.

Petitioner Gonzales should be reminded of Section 3 of Rule 3 of the Rules on Civil Procedure which explicitly states that an action should be brought against the real party in interest, 12 and in case the action is brought against the agent, the action must be brought against an agent acting in his own name and for the benefit of an undisclosed principal without joining the principal, except when the contract involves things belonging to the principal. 13 The real party in interest is the party who would be benefited or injured by the judgment or is the party entitled to the avails of the suit. We have held that in such a situation, an attorney-in-fact is not a real party in interest and that there is no law permitting an action to be brought by and against an attorney-in- fact. 14

Worth stressing, the action filed by Gonzales before the RTC is for specific performance to compel Priscilla to execute a deed of sale, involving real property which, however, does not belong to Priscilla but to Aristotle Manio, the son of Priscilla. The complaint only named as defendant Priscilla, joined by her spouse, yet Priscilla had no interest on the lot and can have no interest whatever in any judgment rendered. She was not acting in her own name, nor was she acting for the benefit of an undisclosed principal. The joinder of all indispensable parties is a condition sine qua non of the exercise of judicial powers, and the absence of indispensable party renders all subsequent actions of the court null and void for want of authority to act, not only as to the absent parties but even as to those present. 15 Accordingly, the failure to implead Aristotle Manio as defendant renders all proceedings in the Civil Case No. 2647, including the order granting the cancellation of TCT No. 16658 and issuance of a new title, null and void.

It is settled that a person need not be a party to the judgment sought to be annulled. 16 What is essential is that he can prove his allegation that the judgment was obtained by fraud or collusion and he would be adversely affected thereby, 17 because if fully substantiated by preponderance of evidence, those allegations could be the basis for annulment of the assailed judgment.

In the present case, even if respondents were not parties to the specific performance case, any finding that there was extrinsic fraud in the institution of the complaint, i.e. exclusion of the real party in interest, and collusion between petitioner and Sheriff Senoy, would adversely affect the respondents' ownership and thus, could be their basis for annulment of the judgment.

Pertinently, Section 2 of Rule 47 of the Rules on Civil Procedure explicitly provides the two grounds for annulment of judgment, namely: extrinsic fraud and lack of jurisdiction. 18

There is extrinsic fraud when a party has been prevented by fraud or deception from presenting his case. Fraud is extrinsic where it prevents a party from having a trial or from presenting his entire case to the court, or where it operates upon matters pertaining not to the judgment itself but to the manner in which it is procured. The overriding consideration when extrinsic fraud is alleged is that the fraudulent scheme of the prevailing litigant prevented a party from having his day in court. 19 It must be distinguished from intrinsic fraud which refers to acts of a party at a trial which prevented a fair and just determination of the case, and which could have been litigated and determined at the trial or adjudication of the case. 20

In its Decision dated February 22, 1995, the Court of Appeals found that indices of fraud attended the case before the trial court: First, the plaintiff deliberately excluded the Dabons as party to the case despite knowledge that the Dabons had alleged that they had bought the land from Aristotle. Second, the Sheriff's Return was suspiciously served on a Saturday, at midnight, on August 4, 1990. Third, the trial court ordered the plaintiff to deposit the full payment of property, but subsequently ordered its withdrawal. Lastly, there was no notice given to the person named in the certificate of title which Gonzales wanted to be annulled.

Of the indices of fraud cited by the Court of Appeals, the failure to comply with the notification requirement in the petition for the cancellation of title amounts to extrinsic fraud. Under the Property Registration Decree, all parties in interest shall be given notice. 21 There is nothing in the records that show Gonzales notified the actual occupants or lessees of the property. Further, the records show that Gonzales had known of the sale of the land by Aristotle to the Dabons and despite her knowledge, the former did not include the Dabons in her petition for the annulment of title. Deliberately failing to notify a party entitled to notice also constitutes extrinsic fraud. 22 This fact is sufficient ground to annul the order allowing the cancellation of title in the name of Gonzales.

Likewise, under Rule 47, a judgment is void for lack of jurisdiction over the persons of the real parties in interest, i.e., Aristotle Manio and the Dabons.

Lastly, petitioner insists that the contract of sale between her and Priscilla was valid and enforceable because under the provision on double sale, 23 she owned the land because she bought the lot on April 26, 1988, while the same was allegedly sold to the Dabons on October 19, 1989. In our view, the doctrine on double sale holds no relevance in this case. The pertinent article of the Civil Code provides:

ART. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first possession thereof in good faith, if it should be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in possession; and in the absence thereof; to the person who presents the oldest title, provided there is good faith.

Otherwise stated, where it is immovable property that is the subject of a double sale, ownership shall be transferred (1) to the person acquiring it who in good faith first recorded it in the Registry of Property; (2) in default thereof, to the person who in good faith was first in possession; and (3) in default thereof, to the person who presents the oldest title, provided there is good faith. The requirement of the law is two-fold: acquisition in good faith and registration in good faith.

24

At this juncture, we must emphasize that the action for annulment of judgment under Rule 47 of the Rules of Court does not involve the merits of the final order of the trial court. 25 The issue of whether before us is a case of double sale is outside the scope of the present petition for review. The appellate court only allowed the reception of extraneous evidence to determine extrinsic fraud. To determine which sale was valid, review of evidence is necessary. This we cannot do in this petition. An action for annulment of judgment is independent of the case where the judgment sought to be annulled is rendered 26 and is not an appeal of the judgment therein. 27

The extraneous evidence presented to the appellate court cannot be used to supplant the evidence in the records of the specific performance case because the extraneous evidence was not part of the records on the merits of the case. Again, the extraneous evidence was only allowed merely to prove the allegations of extrinsic fraud. Accordingly, we hold that the issue of ownership of the subject real property cannot be addressed in this petition for review.

Annulment of judgment is not a relief to be granted indiscriminately by the courts. It is a recourse equitable in character and allowed only in exceptional cases as where there is no available or other adequate remedy. 28 This case falls under said exception. In this case, where it was found that the trial court did not have jurisdiction over the real parties in interest, and that notices were deliberately not given, amount to extrinsic fraud. The Court of Appeals did not err in granting the annulment of the judgment in Civil Case No. 2647 and the orders subsequent thereto, for lack of jurisdiction and extrinsic fraud.

WHEREFORE, the petition is DENIED for lack of merit. The assailed Decision dated February 22, 1995 of the Court of Appeals in CA-G.R. SP No. 23687, is AFFIRMED. Costs against petitioner Maria Gonzales.

SO ORDERED.

Carpio, Carpio-Morales, Tinga, Velasco, Jr., J.J., concur.

Republic

of

the

Philippines

respondent lived. Petitioner accepted the offer and proposed the price of P9.50 per square meter.

SUPREME

COURT

Respondent Poncio, after having secured the consent of his wife and parents, accepted the price

Manila

proposed by petitioner, on the condition that from the purchase price would come the money to be

FIRST DIVISION

paid to the bank.

G.R. No. L-29972 January 26, 1976

ROSARIO

CARBONELL, petitioner,

vs.

HONORABLE

COURT

OF

APPEALS,

JOSE

PONCIO,

EMMA

INFANTE

and

RAMON

INFANTE, respondents.

MAKASIAR, J.

Petitioner seeks a review of the resolution of the Court of Appeals (Special Division of Five) dated October 30, 1968, reversing its decision of November 2, 1967 (Fifth Division), and its resolution of December 6, 1968 denying petitioner's motion for reconsideration.

The dispositive part of the challenged resolution reads:

Wherefore, the motion for reconsideration filed on behalf of appellee Emma Infante, is hereby granted and the decision of November 2, 1967, is hereby annulled and set aside. Another judgement shall be entered affirming in toto that of the court a quo, dated January 20, 1965, which dismisses the plaintiff's complaint and defendant's counterclaim.

Without costs.

The facts of the case as follows:

Prior to January 27, 1955, respondent Jose Poncio, a native of the Batanes Islands, was the owner of the parcel of land herein involve with improvements situated at 179 V. Agan St., San Juan, Rizal, having an area of some one hundred ninety-five (195) square meters, more or less, covered by TCT No. 5040 and subject to mortgage in favor of the Republic Savings Bank for the sum of P1,500.00. Petitioner Rosario Carbonell, a cousin and adjacent neighbor of respondent Poncio, and also from the Batanes Islands, lived in the adjoining lot at 177 V. Agan Street.

Both petitioners Rosario Carbonell and respondent Emma Infante offered to buy the said lot from Poncio (Poncio's Answer, p. 38, rec. on appeal).

Respondent Poncio, unable to keep up with the installments due on the mortgage, approached petitioner one day and offered to sell to the latter the said lot, excluding the house wherein

Petitioner and respondent Jose Poncio then went to the Republic Savings Bank and secured the consent of the President thereof for her to pay the arrears on the mortgage and to continue the payment of the installments as they fall due. The amount in arrears reached a total sum of P247.26. But because respondent Poncio had previously told her that the money, needed was only P200.00, only the latter amount was brought by petitioner constraining respondent Jose Poncio to withdraw the sum of P47.00 from his bank deposit with Republic Savings Bank. But the next day, petitioner refunded to Poncio the sum of P47.00.

On January 27, 1955, petitioner and respondent Poncio, in the presence of a witness, made and executed a document in the Batanes dialect, which, translated into English, reads:

CONTRACT FOR ONE HALF LOT WHICH I BOUGHT FROM

JOSE PONCIO

Beginning today January 27, 1955, Jose Poncio can start living on the lot sold by him to me, Rosario Carbonell, until after one year during which time he will not pa anything. Then if after said one can he could not find an place where to move his house, he could still continue occupying the site but he should pay a rent that man, be agreed.

(Sgd)

JOSE

PONCIO

(Sgd.)

ROSARIO

CARBONELL

(Sgd)

CONSTANCIO

MEONADA

Witness

(Pp. 6-7 rec. on appeal).

Thereafter, petitioner asked Atty. Salvador Reyes, also from the Batanes Islands, to prepare the formal deed of sale, which she brought to respondent Poncio together with the amount of some P400.00, the balance she still had to pay in addition to her assuming the mortgaged obligation to Republic Savings Bank.

Upon arriving at respondent Jose Poncio's house, however, the latter told petitioner that he could not proceed any more with the sale, because he had already given the lot to respondent Emma Infants; and that he could not withdraw from his deal with respondent Mrs. Infante, even if he were to go to jail. Petitioner then sought to contact respondent Mrs. Infante but the latter refused to see her.

On February 5, 1955, petitioner saw Emma Infante erecting a all around the lot with a gate.

Petitioner then consulted Atty. Jose Garcia, who advised her to present an adverse claim over the land in question with the Office of the Register of Deeds of Rizal. Atty. Garcia actually sent a letter of inquiry to the Register of Deeds and demand letters to private respondents Jose Poncio and Emma Infante.

In his answer to the complaint Poncio admitted "that on January 30, 1955, Mrs. Infante improved her offer and he agreed to sell the land and its improvements to her for P3,535.00" (pp. 38-40, ROA).

In a private memorandum agreement dated January 31, 1955, respondent Poncio indeed bound himself to sell to his corespondent Emma Infante, the property for the sum of P2,357.52, with respondent Emma Infante still assuming the existing mortgage debt in favor of Republic Savings Bank in the amount of P1,177.48. Emma Infante lives just behind the houses of Poncio and Rosario Carbonell.

On February 2, 1955, respondent Jose Poncio executed the formal deed of sale in favor of respondent Mrs. Infante in the total sum of P3,554.00 and on the same date, the latter paid Republic Savings Bank the mortgage indebtedness of P1,500.00. The mortgage on the lot was eventually discharged.

Informed that the sale in favor of respondent Emma Infante had not yet been registered, Atty. Garcia prepared an adverse claim for petitioner, who signed and swore to an registered the same on February 8, 1955.

The deed of sale in favor of respondent Mrs. Infante was registered only on February 12, 1955. As a consequence thereof, a Transfer Certificate of Title was issued to her but with the annotation of the adverse claim of petitioner Rosario Carbonell.

Respondent Emma Infante took immediate possession of the lot involved, covered the same with 500 cubic meters of garden soil and built therein a wall and gate, spending the sum of P1,500.00. She further contracted the services of an architect to build a house; but the construction of the same started only in 1959 years after the litigation actually began and during its pendency. Respondent Mrs. Infante spent for the house the total amount of P11,929.00.

On June 1, 1955, petitioner Rosario Carbonell, thru counsel, filed a second amended complaint against private respondents, praying that she be declared the lawful owner of the questioned parcel of land; that the subsequent sale to respondents Ramon R. Infante and Emma L. Infante be declared null and void, and that respondent Jose Poncio be ordered to execute the corresponding deed of conveyance of said land in her favor and for damages and attorney's fees (pp. 1-7, rec. on appeal in the C.A.).

Respondents first moved to dismiss the complaint on the ground, among others, that petitioner's claim is unenforceable under the Statute of Frauds, the alleged sale in her favor not being evidenced by a written document (pp. 7-13, rec. on appeal in the C.A.); and when said motion was denied without prejudice to passing on the question raised therein when the case would be tried

on the merits (p. 17, ROA in the C.A.), respondents filed separate answers, reiterating the grounds of their motion to dismiss (pp. 18-23, ROA in the C.A.).

During the trial, when petitioner started presenting evidence of the sale of the land in question to her by respondent Poncio, part of which evidence was the agreement written in the Batanes dialect aforementioned, respondent Infantes objected to the presentation by petitioner of parole evidence to prove the alleged sale between her and respondent Poncio. In its order of April 26, 1966, the trial court sustained the objection and dismissed the complaint on the ground that the memorandum presented by petitioner to prove said sale does not satisfy the requirements of the law (pp. 31-35, ROA in the C.A.).

From the above order of dismissal, petitioner appealed to the Supreme Court (G.R. No. L-11231) which ruled in a decision dated May 12, 1958, that the Statute of Frauds, being applicable only to executory contracts, does not apply to the alleged sale between petitioner and respondent Poncio, which petitioner claimed to have been partially performed, so that petitioner is entitled to establish by parole evidence "the truth of this allegation, as well as the contract itself." The order appealed from was thus reversed, and the case remanded to the court a quo for further proceedings (pp. 26-49, ROA in the C.A.).

After trial in the court a quo; a decision was, rendered on December 5, 1962, declaring the second sale by respondent Jose Poncio to his co-respondents Ramon Infante and Emma Infante of the land in question null and void and ordering respondent Poncio to execute the proper deed of conveyance of said land in favor of petitioner after compliance by the latter of her covenants under her agreement with respondent Poncio (pp. 5056, ROA in the C.A.).

On January 23, 1963, respondent Infantes, through another counsel, filed a motion for re-trial to adduce evidence for the proper implementation of the court's decision in case it would be affirmed on appeal (pp. 56-60, ROA in the C.A.), which motion was opposed by petitioner for being premature (pp. 61-64, ROA in the C.A.). Before their motion for re-trial could be resolved, respondent Infantes, this time through their former counsel, filed another motion for new trial, claiming that the decision of the trial court is contrary to the evidence and the law (pp. 64-78, ROA in the C.A.), which motion was also opposed by petitioner (pp. 78-89, ROA in the C.A.).

The trial court granted a new trial (pp. 89-90, ROA in the C.A.), at which re-hearing only the respondents introduced additional evidence consisting principally of the cost of improvements they introduced on the land in question (p. 9, ROA in the C.A.).

After the re-hearing, the trial court rendered a decision, reversing its decision of December 5, 1962 on the ground that the claim of the respondents was superior to the claim of petitioner, and dismissing the complaint (pp. 91-95, ROA in the C.A.), From this decision, petitioner Rosario Carbonell appealed to the respondent Court of Appeals (p. 96, ROA in the C.A.).

On November 2, 1967, the Court of Appeals (Fifth Division composed of Justices Magno Gatmaitan, Salvador V. Esguerra and Angle H. Mojica, speaking through Justice Magno Gatmaitan), rendered judgment reversing the decision of the trial court, declaring petitioner therein, to have a superior right to the land in question, and condemning the defendant Infantes to

reconvey to petitioner after her reimbursement to them of the sum of P3,000.00 plus legal interest, the land in question and all its improvements (Appendix "A" of Petition).

Respondent Infantes sought reconsideration of said decision and acting on the motion for reconsideration, the Appellate Court, three Justices (Villamor, Esguerra and Nolasco) of Special Division of Five, granted said motion, annulled and set aside its decision of November 2, 1967, and entered another judgment affirming in toto the decision of the court a quo, with Justices Gatmaitan and Rodriguez dissenting (Appendix "B" of Petition).

Petitioner Rosario Carbonell moved to reconsider the Resolution of the Special Division of Five, which motion was denied by Minute Resolution of December 6, 1968 (but with Justices Rodriguez and Gatmaitan voting for reconsideration) [Appendix "C" of Petition].

Hence, this appeal by certiorari.

Article 1544, New Civil Code, which is decisive of this case, recites:

If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith (emphasis supplied).

It is essential that the buyer of realty must act in good faith in registering his deed of sale to merit the protection of the second paragraph of said Article 1544.

Unlike the first and third paragraphs of said Article 1544, which accord preference to the one who first takes possession in good faith of personal or real property, the second paragraph directs that ownership of immovable property should be recognized in favor of one "who in good faith first recorded" his right. Under the first and third paragraph, good faith must characterize the act of anterior registration (DBP vs. Mangawang, et al., 11 SCRA 405; Soriano, et al. vs. Magale, et al., 8 SCRA 489).

If there is no inscription, what is decisive is prior possession in good faith. If there is inscription, as in the case at bar, prior registration in good faith is a pre-condition to superior title.

When Carbonell bought the lot from Poncio on January 27, 1955, she was the only buyer thereof and the title of Poncio was still in his name solely encumbered by bank mortgage duly annotated thereon. Carbonell was not aware and she could not have been aware of any sale of Infante as there was no such sale to Infante then. Hence, Carbonell's prior purchase of the land was made in good faith. Her good faith subsisted and continued to exist when she recorded her

adverse claim four (4) days prior to the registration of Infantes's deed of sale. Carbonell's good faith did not cease after Poncio told her on January 31, 1955 of his second sale of the same lot to Infante. Because of that information, Carbonell wanted an audience with Infante, which desire underscores Carbonell's good faith. With an aristocratic disdain unworthy of the good breeding of

a good Christian and good neighbor, Infante snubbed Carbonell like a leper and refused to see

her. So Carbonell did the next best thing to protect her right she registered her adversed claim on February 8, 1955. Under the circumstances, this recording of her adverse claim should be deemed to have been done in good faith and should emphasize Infante's bad faith when she registered her deed of sale four (4) days later on February 12, 1955.

Bad faith arising from previous knowledge by Infante of the prior sale to Carbonell is shown by the following facts, the vital significance and evidenciary effect of which the respondent Court of Appeals either overlooked of failed to appreciate:

(1) Mrs. Infante refused to see Carbonell, who wanted to see Infante after she was informed by Poncio that he sold the lot to Infante but several days before Infante registered her deed of sale. This indicates that Infante knew from Poncio and from the bank of the prior sale of the lot by

Poncio to Carbonell. Ordinarily, one will not refuse to see a neighbor. Infante lives just behind the house of Carbonell. Her refusal to talk to Carbonell could only mean that she did not want to listen

to Carbonell's story that she (Carbonell) had previously bought the lot from Poncio.