G.R. No.
150666 August 3, 2010 The RTC ruled in favor of respondent-spouses and found that petitioners’
LUCIANO BRIONES and NELLY BRIONES, Petitioners,
vs.
JOSE MACABAGDAL, FE D. MACABAGDAL and VERGON REALTY
INVESTMENTS CORPORATION, Respondents.
DECISION
VILLARAMA, JR., J.:
On appeal under Rule 45 of the 1997 Rules of Civil Procedure, as amended,
is the Decision1 dated December 11, 2000 of the Court of Appeals (CA) in
CA-G.R. CV No. 48109 which affirmed the September 29, 1993 Decision2 of
the Regional Trial Court (RTC) of Makati City, Branch 135, ordering
petitioners Luciano and Nelly Briones to remove the improvements they have
made on the disputed property or to pay respondent-spouses Jose and Fe
Macabagdal the prevailing price of the land as compensation.
The undisputed factual antecedents of the case are as follows:
Respondent-spouses purchased from Vergon Realty Investments
Corporation (Vergon) Lot No. 2-R, a 325-square-meter land located in
Vergonville Subdivision No. 10 at Las Piñas City, Metro Manila and covered
by Transfer Certificate of Title No. 62181 of the Registry of Deeds of Pasay
City. On the other hand, petitioners are the owners of Lot No. 2-S, which is
adjacent to Lot No. 2-R.
Sometime in 1984, after obtaining the necessary building permit and the
approval of Vergon, petitioners constructed a house on Lot No. 2-R which
they thought was Lot No. 2-S. After being informed of the mix up by Vergon’s
manager, respondent-spouses immediately demanded petitioners to
demolish the house and vacate the property. Petitioners, however, refused to
heed their demand. Thus, respondent-spouses filed an action to recover
ownership and possession of the said parcel of land with the RTC of Makati
City.3
Petitioners insisted that the lot on which they constructed their house was the
lot which was consistently pointed to them as theirs by Vergon’s agents over
the seven (7)-year period they were paying for the lot. They interposed the
defense of being buyers in good faith and impleaded Vergon as third-party
defendant claiming that because of the warranty against eviction, they were
entitled to indemnity from Vergon in case the suit is decided against them. 4
house was undoubtedly built on Lot No. 2-R. The dispositive portion of the
trial court’s decision reads as follows:
PREMISES CONSIDERED, let judgment be rendered declaring, to wit:
1. That plaintiffs are the owners of Lot No. 2-R of subdivision plan
(LRC) Psd-147392 at Vergonville Subdivision, No. 10, Las Piñas,
Metro Manila covered by TCT No. 62181 of the Registry of Deeds of
Pasay City on which defendants have constructed their house;
2. Defendants, jointly and severally, are ordered to demolish their
house and vacate the premises and return the possession of the
portion of Lot No. 2-R as above-described to plaintiffs within thirty
(30) days from receipt of this decision, or in the alternative, plaintiffs
should be compensated by defendants, jointly and severally, by the
payment of the prevailing price of the lot involved as Lot No. 2-R with
an area of 325 square meters which should not be less than
₱1,500.00 per square meter, in consideration of the fact that prices
of real estate properties in the area concerned have increased
rapidly;
3. Defendants, jointly and severally, pay to plaintiffs for moral
damages with plaintiffs’ plans and dreams of building their own
house on their own lot being severely shattered and frustrated due to
defendants’ incursion as interlopers of Lot No. 2-R in the sum of
₱50,000.00;
4. Defendants, jointly and severally, to pay plaintiffs in the amount of
₱30,000.00 as attorney’s fees; and,
5. to pay the costs of the proceedings.
Defendants’ counterclaim against plaintiffs is dismissed for lack of merit and
with no cause of action.
Defendants’ third-party complaint against third-party defendant Vergonville
Realty and Investments Corporation is likewise ordered dismissed for lack of
cause of action and evidently without merit.
On the other hand, defendants, jointly and severally, are liable for the
litigation expenses incurred by Vergonville Realty by way of counterclaim,
which is also proven by the latter with a mere preponderance of evidence,
and are hereby ordered to pay the sum of ₱20,000.00 as compensatory
damage; and attorney’s fees in the sum of ₱10,000.00
SO ORDERED.5
On appeal, the CA affirmed the RTC’s finding that the lot upon which
petitioners built their house was not the one (1) which Vergon sold to them.
Based on the documentary evidence, such as the titles of the two (2) lots, the
contracts to sell, and the survey report made by the geodetic engineer,
petitioners’ house was built on the lot of the respondent-spouses.6 There was
no basis to presume that the error was Vergon’s fault. Also the warranty
against eviction under Article 1548 of the Civil Code was not applicable as
there was no deprivation of property: the lot on which petitioners built their
house was not the lot sold to them by Vergon, which remained vacant and
ready for occupation.7 The CA further ruled that petitioners cannot use the
defense of allegedly being a purchaser in good faith for wrongful occupation
of land.8
Aggrieved, petitioners filed a motion for reconsideration, but it was denied by
the appellate court.9 Hence, this petition for review on certiorari.
Petitioners raise the following assignment of errors:
I.
THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE
CONTRARY TO LAW AND APPLICABLE DECISIONS OF THE SUPREME
COURT IN AFFIRMING THE DECISION OF THE TRIAL COURT
ORDERING PETITIONERS TO DEMOLISH THEIR ONLY HOUSE AND
VACATE THE LOT AND TO PAY MORAL AND COMPENSATORY
DAMAGES AS WELL AS ATTORNEY’S FEE IN THE TOTAL AMOUNT OF
PS[₱] 110,000; AND
II.
THE COURT OF APPEALS SANCTIONED THE DEPARTURE OF THE
LOWER COURT FROM THE ACCEPTED AND USUAL COURSE OF
JUDICIAL PROCEEDINGS AS TO CALL FOR AN EXERCISE OF THE
POWER OF SUPERVISION.10
In the main, it is petitioners’ position that they must not bear the damage
alone. Petitioners insist that they relied with full faith and confidence in the
reputation of Vergon’s agents when they pointed the wrong property to them.
Even the President of Vergon, Felix Gonzales, consented to the construction
of the house when he signed the building permit.11 Also, petitioners are
builders in good faith.12
The petition is partly meritorious.
At the outset, we note that petitioners raise factual issues, which are beyond
the scope of a petition for review on certiorari under Rule 45 of the Rules.
Well settled is the rule that the jurisdiction of this Court in cases brought to it
from the CA via a petition for review on certiorari under Rule 45 is limited to
the review of errors of law. The Court is not bound to weigh all over again the
evidence adduced by the parties, particularly where the findings of both the
trial court and the appellate court coincide. The resolution of factual issues is
a function of the trial court whose findings on these matters are, as a general
rule, binding on this Court, more so where these have been affirmed by the
CA.13 We note that the CA and RTC did not overlook or fail to appreciate any
material circumstance which, when properly considered, would have altered
the result of the case. Indeed, it is beyond cavil that petitioners mistakenly
constructed their house on Lot No. 2-R which they thought was Lot No. 2-S.
However, the conclusiveness of the factual findings notwithstanding, we find
that the trial court nonetheless erred in outrightly ordering petitioners to
vacate the subject property or to pay respondent spouses the prevailing price
of the land as compensation. Article 52714 of the Civil Code presumes good
faith, and since no proof exists to show that the mistake was done by
petitioners in bad faith, the latter should be presumed to have built the house
in good faith.
When a person builds in good faith on the land of another, Article 448 of the
Civil Code governs. Said article provides,
ART. 448. The owner of the land on which anything has been built, sown or
planted in good faith, shall have the right to appropriate as his own the
works, sowing or planting, after payment of the indemnity provided for in
Articles 546 and 548, or to oblige the one who built or planted to pay the
price of the land, and the one who sowed, the proper rent. However, the
builder or planter cannot be obliged to buy the land if its value is considerably
more than that of the building or trees. In such case, he shall pay reasonable
rent, if the owner of the land does not choose to appropriate the building or
trees after proper indemnity. The parties shall agree upon the terms of the
lease and in case of disagreement, the court shall fix the terms thereof.
(Emphasis ours.)
The above-cited article covers cases in which the builders, sowers or
planters believe themselves to be owners of the land or, at least, to have a
claim of title thereto.15 The builder in good faith can compel the landowner to
make a choice between appropriating the building by paying the proper
indemnity or obliging the builder to pay the price of the land. The choice
belongs to the owner of the land, a rule that accords with the principle of
accession, i.e., that the accessory follows the principal and not the other way
around. However, even as the option lies with the landowner, the grant to
him, nevertheless, is preclusive. He must choose one.16 He cannot, for
instance, compel the owner of the building to remove the building from the
land without first exercising either option. It is only if the owner chooses to
sell his land, and the builder or planter fails to purchase it where its value is
not more than the value of the improvements, that the owner may remove the
improvements from the land. The owner is entitled to such remotion only
when, after having chosen to sell his land, the other party fails to pay for the
same.17
Moreover, petitioners have the right to be indemnified for the necessary and
useful expenses they may have made on the subject property. Articles 546
and 548 of the Civil Code provide,
ART. 546. Necessary expenses shall be refunded to every possessor; but
only the possessor in good faith may retain the thing until he has been
reimbursed therefor.
Useful expenses shall be refunded only to the possessor in good faith with
the same right of retention, the person who has defeated him in the
possession having the option of refunding the amount of the expenses or of
paying the increase in value which the thing may have acquired by reason
thereof.
ART. 548. Expenses for pure luxury or mere pleasure shall not be refunded
to the possessor in good faith; but he may remove the ornaments with which
he has embellished the principal thing if it suffers no injury thereby, and if his
successor in the possession does not prefer to refund the amount expended.
Consequently, the respondent-spouses have the option to appropriate the
house on the subject land after payment to petitioners of the appropriate
indemnity or to oblige petitioners to pay the price of the land, unless its value
is considerably more than the value of the structures, in which case
petitioners shall pay reasonable rent.
In accordance with Depra v. Dumlao,18 this case must be remanded to the
RTC which shall conduct the appropriate proceedings to assess the
respective values of the improvement and of the land, as well as the amounts
of reasonable rentals and indemnity, fix the terms of the lease if the parties
so agree, and to determine other matters necessary for the proper
application of Article 448, in relation to Articles 546 and 548, of the Civil
Code.
As to the liability of Vergon, petitioners failed to present sufficient evidence to
show negligence on Vergon’s part. Petitioners’ claim is obviously one (1) for
tort, governed by Article 2176 of the Civil Code, which provides:
ART. 2176. Whoever by act or omission causes damage to another, there
being fault or negligence, is obliged to pay for the damage done. Such fault
or negligence, if there is no preexisting contractual relation between the
parties, is called a quasi-delict and is governed by the provisions of this
Chapter. (Emphasis ours.)
Under this provision, it is the plaintiff who has to prove by a preponderance of
evidence: (1) the damages suffered by the plaintiff; (2) the fault or negligence
of the defendant or some other person for whose act he must respond; and
(3) the connection of cause and effect between the fault or negligence and
the damages incurred.19 This the petitioners failed to do. The President of
Vergon signed the building permit as a precondition for its approval by the
local government, but it did not guarantee that petitioners were constructing
the structure within the metes and bounds of petitioners’ lot. The signature of
the President of Vergon on the building permit merely proved that petitioners
were authorized to make constructions within the subdivision project of
Vergon. And while petitioners acted in good faith in building their house on
Lot No. 2-R, petitioners did not show by what authority the agents or
employees of Vergon were acting when they pointed to the lot where the
construction was made nor was petitioners’ claim on this matter corroborated
by sufficient evidence.
One (1) last note on the award of damages. Considering that petitioners
acted in good faith in building their house on the subject property of the
respondent-spouses, there is no basis for the award of moral damages to
respondent-spouses. Likewise, the Court deletes the award to Vergon of
compensatory damages and attorney’s fees for the litigation expenses
Vergon had incurred as such amounts were not specifically prayed for in its
Answer to petitioners’ third-party complaint. Under Article 220820 of the Civil
Code, attorney’s fees and expenses of litigation are recoverable only in the
concept of actual damages, not as moral damages nor judicial costs. Hence,
such must be specifically prayed for—as was not done in this case—and
may not be deemed incorporated within a general prayer for "such other
relief and remedy as this court may deem just and equitable."21 It must also
be noted that aside from the following, the body of the trial court’s decision
was devoid of any statement regarding attorney’s fees. In Scott Consultants
& Resource Development Corporation, Inc. v. Court of Appeals,22 we
reiterated that attorney’s fees are not to be awarded every time a party wins
a suit. The power of the court to award attorney’s fees under Article 2208 of
the Civil Code demands factual, legal, and equitable justification; its basis
cannot be left to speculation or conjecture. Where granted, the court must
explicitly state in the body of the decision, and not only in the dispositive
portion thereof, the legal reason for the award of attorney’s fees.1avvphi1
WHEREFORE, the Decision dated December 11, 2000 of the Court of
Appeals in CA-G.R. CV No. 48109 is AFFIRMED WITH MODIFICATION.
The award of moral damages in favor of respondent-spouses Jose and Fe
Macabagdal and the award of compensatory damages and attorney’s fees to
respondent Vergon Realty Investments Corporation are DELETED. The case
is REMANDED to the Regional Trial Court of Makati City, Branch 135, for
further proceedings consistent with the proper application of Articles 448, 546
and 548 of the Civil Code, as follows:
1. The trial court shall determine:
a. the present fair price of the respondent-spouses’ lot;
b. the amount of the expenses spent by petitioners for the
building of their house;
c. the increase in value ("plus value") which the said lot may
have acquired by reason thereof; and
d. whether the value of said land is considerably more than
that of the house built thereon.
2. After said amounts shall have been determined by competent
evidence, the Regional Trial Court shall render judgment, as follows:
a. The trial court shall grant the respondent-spouses a period
of fifteen (15) days within which to exercise their option
under Article 448 of the Civil Code, whether to appropriate
the house as their own by paying to petitioners either the
amount of the expenses spent by petitioners for the building
of the house, or the increase in value ("plus value") which
the said lot may have acquired by reason thereof, or to
oblige petitioners to pay the price of said land. The amounts
to be respectively paid by the respondent-spouses and
petitioners, in accordance with the option thus exercised by
written notice of the other party and to the Court, shall be
paid by the obligor within fifteen (15) days from such notice
of the option by tendering the amount to the Court in favor of
the party entitled to receive it;
b. The trial court shall further order that if the respondent-
spouses exercises the option to oblige petitioners to pay the
price of the land but the latter rejects such purchase
because, as found by the trial court, the value of the land is
considerably more than that of the house, petitioners shall
give written notice of such rejection to the respondent-
spouses and to the Court within fifteen (15) days from notice
of the respondent-spouses’ option to sell the land. In that
event, the parties shall be given a period of fifteen (15) days
from such notice of rejection within which to agree upon the
terms of the lease, and give the Court formal written notice of
such agreement and its provisos. If no agreement is reached
by the parties, the trial court, within fifteen (15) days from
and after the termination of the said period fixed for
negotiation, shall then fix the terms of the lease, payable
within the first five (5) days of each calendar month. The
period for the forced lease shall not be more than two (2)
years, counted from the finality of the judgment, considering
the long period of time since petitioners have occupied the
subject area. The rental thus fixed shall be increased by ten
percent (10%) for the second year of the forced lease.
Petitioners shall not make any further constructions or
improvements on the house. Upon expiration of the two (2)-
year period, or upon default by petitioners in the payment of
rentals for two (2) consecutive months, the respondent-
spouses shall be entitled to terminate the forced lease, to
recover their land, and to have the house removed by
petitioners or at the latter’s expense. The rentals herein
provided shall be tendered by petitioners to the Court for
payment to the respondent-spouses, and such tender shall
constitute evidence of whether or not compliance was made
within the period fixed by the Court.
c. In any event, petitioners shall pay the respondent-spouses
reasonable compensation for the occupancy of the
respondent-spouses’ land for the period counted from the
year petitioners occupied the subject area, up to the
 commencement date of the forced lease referred to in the
preceding paragraph;

d. The periods to be fixed by the trial court in its Decision

shall be inextendible, and upon failure of the party obliged to
tender to the trial court the amount due to the obligee, the
party entitled to such payment shall be entitled to an order of
execution for the enforcement of payment of the amount due
and for compliance with such other acts as may be required
by the prestation due the obligee.

No costs.

SO ORDERED
G.R. No. 107207 November 23, 1995
VIRGILIO R. ROMERO, petitioner,
vs.
HON. COURT OF APPEALS and ENRIQUETA CHUA VDA. DE
ONGSIONG, respondents.
VITUG, J.:
The parties pose this question: May the vendor demand the rescission of a
contract for the sale of a parcel of land for a cause traceable to his own
failure to have the squatters on the subject property evicted within the
contractually-stipulated period?
Petitioner Virgilio R. Romero, a civil engineer, was engaged in the business
of production, manufacture and exportation of perlite filter aids, permalite
insulation and processed perlite ore. In 1988, petitioner and his foreign
partners decided to put up a central warehouse in Metro Manila on a land
area of approximately 2,000 square meters. The project was made known to
several freelance real estate brokers.
A day or so after the announcement, Alfonso Flores and his wife,
accompanied by a broker, offered a parcel of land measuring 1,952 square
meters. Located in Barangay San Dionisio, Parañaque, Metro Manila, the lot
was covered by TCT No. 361402 in the name of private respondent
Enriqueta Chua vda. de Ongsiong. Petitioner visited the property and, except
for the presence of squatters in the area, he found the place suitable for a
central warehouse.
Later, the Flores spouses called on petitioner with a proposal that should he
advance the amount of P50,000.00 which could be used in taking up an
ejectment case against the squatters, private respondent would agree to sell
the property for only P800.00 per square meter. Petitioner expressed his
concurrence. On 09 June 1988, a contract, denominated "Deed of
Conditional Sale," was executed between petitioner and private respondent.
The simply-drawn contract read:
DEED OF CONDITIONAL SALE
KNOW ALL MEN BY THESE PRESENTS:
This Contract, made and executed in the Municipality of
Makati, Philippines this 9th day of June, 1988 by and
between:
ENRIQUETA CHUA VDA. DE ONGSIONG,
of legal age, widow, Filipino and residing at
105 Simoun St., Quezon City, Metro Manila,
hereinafter referred to as the VENDOR;
-and-
VIRGILIO R. ROMERO, married to Severina
L. Lat, of Legal age, Filipino, and residing at
110 San Miguel St., Plainview Subd.,
Mandaluyong Metro Manila, hereinafter
referred to as the VENDEE:
W I T N E S S E T H : That
WHEREAS, the VENDOR is the owner of One (1) parcel of
land with a total area of ONE THOUSAND NINE HUNDRED
FIFTY TWO (1,952) SQUARE METERS, more or less,
located in Barrio San Dionisio, Municipality of Parañaque,
Province of Rizal, covered by TCT No. 361402 issued by the
Registry of Deeds of Pasig and more particularly described
as follows:
xxx xxx xxx
WHEREAS, the VENDEE, for (sic) has offered to buy a
parcel of land and the VENDOR has accepted the offer,
subject to the terms and conditions hereinafter stipulated:
NOW, THEREFORE, for and in consideration of the sum of
ONE MILLION FIVE HUNDRED SIXTY ONE THOUSAND
SIX HUNDRED PESOS (P1,561,600.00) ONLY, Philippine
Currency, payable by VENDEE to in to (sic) manner set
forth, the VENDOR agrees to sell to the VENDEE, their
heirs, successors, administrators, executors, assign, all her
rights, titles and interest in and to the property mentioned in
the FIRST WHEREAS CLAUSE, subject to the following
terms and conditions:
 1. That the sum of FIFTY THOUSAND
PESOS (P50,000.00) ONLY Philippine
Currency, is to be paid upon signing and
execution of this instrument.
2. The balance of the purchase price in the
amount of ONE MILLION FIVE HUNDRED
ELEVEN THOUSAND SIX HUNDRED
PESOS (P1,511,600.00) ONLY shall be paid
45 days after the removal of all squatters
from the above described property.
3. Upon full payment of the overall purchase
price as aforesaid, VENDOR without
necessity of demand shall immediately sign,
execute, acknowledged (sic) and deliver the
corresponding deed of absolute sale in favor
of the VENDEE free from all liens and
encumbrances and all Real Estate taxes are
all paid and updated.
It is hereby agreed, covenanted and stipulated by and
between the parties hereto that if after 60 days from the date
of the signing of this contract the VENDOR shall not be able
to remove the squatters from the property being purchased,
the downpayment made by the buyer shall be
returned/reimbursed by the VENDOR to the VENDEE.
That in the event that the VENDEE shall not be able to pay
the VENDOR the balance of the purchase price of ONE
MILLION FIVE HUNDRED ELEVEN THOUSAND SIX
HUNDRED PESOS (P1,511,600.00) ONLY after 45 days
from written notification to the VENDEE of the removal of the
squatters from the property being purchased, the FIFTY
THOUSAND PESOS (P50,000.00) previously paid as
downpayment shall be forfeited in favor of the VENDOR.
Expenses for the registration such as registration fees,
documentary stamp, transfer fee, assurances and such other
fees and expenses as may be necessary to transfer the title
to the name of the VENDEE shall be for the account of the
VENDEE while capital gains tax shall be paid by the
VENDOR.
IN WITNESS WHEREOF, the parties hereunto signed those
(sic) presents in the City of Makati MM, Philippines on this
9th day of June, 1988.
(Sgd.) (Sgd.)
VIRGILIO R. ROMERO ENRIQUETA CHUA
VDA.
DE ONGSIONG
Vendee Vendor
SIGNED IN THE PRESENCE OF:
(Sgd.) (Sgd.)
Rowena C. Ongsiong Jack M. Cruz1
Alfonso Flores, in behalf of private respondent, forthwith received
and acknowledged a check for P50,000.002 from petitioner.3
Pursuant to the agreement, private respondent filed a complaint for
ejectment (Civil Case No. 7579) against Melchor Musa and 29 other squatter
families with the Metropolitan Trial Court of Parañaque. A few months later,
or on 21 February 1989, judgment was rendered ordering the defendants to
vacate the premises. The decision was handed down beyond the 60-day
period (expiring 09 August 1988) stipulated in the contract. The writ of
execution of the judgment was issued, still later, on 30 March 1989.
In a letter, dated 07 April 1989, private respondent sought to return the
P50,000.00 she received from petitioner since, she said, she could not "get
rid of the squatters" on the lot. Atty. Sergio A.F. Apostol, counsel for
petitioner, in his reply of 17 April 1989, refused the tender and stated:.
Our client believes that with the exercise of reasonable
diligence considering the favorable decision rendered by the
Court and the writ of execution issued pursuant thereto, it is
now possible to eject the squatters from the premises of the
subject property, for which reason, he proposes that he shall
take it upon himself to eject the squatters, provided, that
expenses which shall be incurred by reason thereof shall be
chargeable to the purchase price of the land.4
Meanwhile, the Presidential Commission for the Urban Poor ("PCUD"),
through its Regional Director for Luzon, Farley O. Viloria, asked the
Metropolitan Trial Court of Parañaque for a grace period of 45 days from 21
April 1989 within which to relocate and transfer the squatter families. Acting
favorably on the request, the court suspended the enforcement of the writ of
execution accordingly.
On 08 June 1989, Atty. Apostol reminded private respondent on the expiry of
the 45-day grace period and his client's willingness to "underwrite the
expenses for the execution of the judgment and ejectment of the
occupants."5
In his letter of 19 June 1989, Atty. Joaquin Yuseco, Jr., counsel for private
respondent, advised Atty. Apostol that the Deed of Conditional Sale had
been rendered null and void by virtue of his client's failure to evict the
squatters from the premises within the agreed 60-day period. He added that
private respondent had "decided to retain the property."6
On 23 June 1989, Atty. Apostol wrote back to explain:
The contract of sale between the parties was perfected from
the very moment that there was a meeting of the minds of
the parties upon the subject lot and the price in the amount
of P1,561,600.00. Moreover, the contract had already been
partially fulfilled and executed upon receipt of the
downpayment of your client. Ms. Ongsiong is precluded from
rejecting its binding effects relying upon her inability to eject
the squatters from the premises of subject property during
the agreed period. Suffice it to state that, the provision of the
Deed of Conditional Sale do not grant her the option or
prerogative to rescind the contract and to retain the property
should she fail to comply with the obligation she has
assumed under the contract. In fact, a perusal of the terms
and conditions of the contract clearly shows that the right to
rescind the contract and to demand the
return/reimbursement of the downpayment is granted to our
client for his protection.
Instead, however, of availing himself of the power to rescind
the contract and demand the return, reimbursement of the
downpayment, our client had opted to take it upon himself to
eject the squatters from the premises. Precisely, we refer
you to our letters addressed to your client dated April 17,
1989 and June 8, 1989.
Moreover, it is basic under the law on contracts that the
power to rescind is given to the injured party. Undoubtedly,
under the circumstances, our client is the injured party.
Furthermore, your client has not complied with her obligation
under their contract in good faith. It is undeniable that Ms.
Ongsiong deliberately refused to exert efforts to eject the
squatters from the premises of the subject property and her
decision to retain the property was brought about by the
sudden increase in the value of realties in the surrounding
areas.
Please consider this letter as a tender of payment to your
client and a demand to execute the absolute Deed of Sale.7
A few days later (or on 27 June 1989), private respondent, prompted by
petitioner's continued refusal to accept the return of the P50,000.00 advance
payment, filed with the Regional Trial Court of Makati, Branch 133, Civil Case
No. 89-4394 for rescission of the deed of "conditional" sale, plus damages,
and for the consignation of P50,000.00 cash.
Meanwhile, on 25 August 1989, the Metropolitan Trial Court issued an alias
writ of execution in Civil Case No. 7579 on motion of private respondent but
the squatters apparently still stayed on.
Back to Civil Case No. 89-4394, on 26 June 1990, the Regional Trial Court of
Makati8 rendered decision holding that private respondent had no right to
rescind the contract since it was she who "violated her obligation to eject the
squatters from the subject property" and that petitioner, being the injured
party, was the party who could, under Article 1191 of the Civil Code, rescind
the agreement. The court ruled that the provisions in the contract relating to
(a) the return/reimbursement of the P50,000.00 if the vendor were to fail in
her obligation to free the property from squatters within the stipulated period
or (b), upon the other hand, the sum's forfeiture by the vendor if the vendee
were to fail in paying the agreed purchase price, amounted to "penalty
clauses". The court added:
This Court is not convinced of the ground relied upon by the
plaintiff in seeking the rescission, namely: (1) he (sic) is
afraid of the squatters; and (2) she has spent so much to
eject them from the premises (p. 6, tsn, ses. Jan. 3, 1990).
Militating against her profession of good faith is plaintiffs
conduct which is not in accord with the rules of fair play and
justice. Notably, she caused the issuance of an alias writ of
 execution on August 25, 1989 (Exh. 6) in the ejectment suit
which was almost two months after she filed the complaint
before this Court on June 27, 1989. If she were really afraid
of the squatters, then she should not have pursued the
issuance of an alias writ of execution. Besides, she did not
even report to the police the alleged phone threats from the
squatters. To the mind of the Court, the so-called squatter
factor is simply factuitous (sic).9
The lower court, accordingly, dismissed the complaint and ordered,
instead, private respondent to eject or cause the ejectment of the
squatters from the property and to execute the absolute deed of
conveyance upon payment of the full purchase price by petitioner.
Private respondent appealed to the Court of Appeals. On 29 May 1992, the
appellate court rendered its decision. 10 It opined that the contract entered
into by the parties was subject to a resolutory condition, i.e., the ejectment of
the squatters from the land, the non-occurrence of which resulted in the
failure of the object of the contract; that private respondent substantially
complied with her obligation to evict the squatters; that it was petitioner who
was not ready to pay the purchase price and fulfill his part of the contract,
and that the provision requiring a mandatory return/reimbursement of the
P50,000.00 in case private respondent would fail to eject the squatters within
the 60-day period was not a penal clause. Thus, it concluded.
WHEREFORE, the decision appealed from is REVERSED
and SET ASIDE, and a new one entered declaring the
contract of conditional sale dated June 9, 1988 cancelled
and ordering the defendant-appellee to accept the return of
the downpayment in the amount of P50,000.00 which was
deposited in the court below. No pronouncement as to
costs.11
Failing to obtain a reconsideration, petitioner filed this petition for review on
certiorari raising issues that, in fine, center on the nature of the contract
adverted to and the P50,000.00 remittance made by petitioner.
A perfected contract of sale may either be absolute or conditional12
depending on whether the agreement is devoid of, or subject to, any
condition imposed on the passing of title of the thing to be conveyed or on
the obligation of a party thereto. When ownership is retained until the
fulfillment of a positive condition the breach of the condition will simply
prevent the duty to convey title from acquiring an obligatory force. If the
condition is imposed on an obligation of a party which is not complied with,
the other party may either refuse to proceed or waive said condition (Art.
1545, Civil Code). Where, of course, the condition is imposed upon the
perfection of the contract itself, the failure of such condition would prevent
the juridical relation itself from coming into existence.13
In determining the real character of the contract, the title given to it by the
parties is not as much significant as its substance. For example, a deed of
sale, although denominated as a deed of conditional sale, may be treated as
absolute in nature, if title to the property sold is not reserved in the vendor or
if the vendor is not granted the right to unilaterally rescind the contract
predicated
on the fulfillment or non-fulfillment, as the case may be, of the prescribed
condition.14
The term "condition" in the context of a perfected contract of sale pertains, in
reality, to the compliance by one party of an undertaking the fulfillment of
which would beckon, in turn, the demandability of the reciprocal prestation of
the other party. The reciprocal obligations referred to would normally be, in
the case of vendee, the payment of the agreed purchase price and, in the
case of the vendor, the fulfillment of certain express warranties (which, in the
case at bench is the timely eviction of the squatters on the property).
It would be futile to challenge the agreement here in question as not being a
duly perfected contract. A sale is at once perfected when a person (the
seller) obligates himself, for a price certain, to deliver and to transfer
ownership of a specified thing or right to another (the buyer) over which the
latter agrees.15
The object of the sale, in the case before us, was specifically identified to be
a 1,952-square meter lot in San Dionisio, Parañaque, Rizal, covered by
Transfer Certificate of Title No. 361402 of the Registry of Deeds for Pasig
and therein technically described. The purchase price was fixed at
P1,561,600.00, of which P50,000.00 was to be paid upon the execution of
the document of sale and the balance of P1,511,600.00 payable "45 days
after the removal of all squatters from the above described property."
From the moment the contract is perfected, the parties are bound not only to
the fulfillment of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping with good
faith, usage and law. Under the agreement, private respondent is obligated to
evict the squatters on the property. The ejectment of the squatters is a
condition the operative act of which sets into motion the period of compliance
by petitioner of his own obligation, i.e., to pay the balance of the purchase
price. Private respondent's failure "to remove the squatters from the property"
within the stipulated period gives petitioner the right to either refuse to WHEREFORE, the questioned decision of the Court of Appeals is hereby
proceed with the agreement or waive that condition in consonance with REVERSED AND SET ASIDE, and another is entered ordering petitioner to
Article 1545 of the Civil Code.16 This option clearly belongs to petitioner and pay private respondent the balance of the purchase price and the latter to
not to private respondent. execute the deed of absolute sale in favor of petitioner. No costs.

We share the opinion of the appellate court that the undertaking required of SO ORDERED.
private respondent does not constitute a "potestative condition dependent
solely on his will" that might, otherwise, be void in accordance with Article
1182 of the Civil Code17 but a "mixed" condition "dependent not on the will
of the vendor alone but also of third persons like the squatters and
government agencies and personnel concerned."18 We must hasten to add,
however, that where the so-called "potestative condition" is imposed not on
the birth of the obligation but on its fulfillment, only the obligation is avoided,
leaving unaffected the obligation itself.19

In contracts of sale particularly, Article 1545 of the Civil Code,

aforementioned, allows the obligee to choose between proceeding with the
agreement or waiving the performance of the condition. It is this provision
which is the pertinent rule in the case at bench. Here, evidently, petitioner
has waived the performance of the condition imposed on private respondent
to free the property from squatters.20

In any case, private respondent's action for rescission is not warranted. She
is not the injured party.21 The right of resolution of a party to an obligation
under Article 1191 of the Civil Code is predicated on a breach of faith by the
other party that violates the reciprocity between them.22 It is private
respondent who has failed in her obligation under the contract. Petitioner did
not breach the agreement. He has agreed, in fact, to shoulder the expenses
of the execution of the judgment in the ejectment case and to make
arrangements with the sheriff to effect such execution. In his letter of 23 June
1989, counsel for petitioner has tendered payment and demanded forthwith
the execution of the deed of absolute sale. Parenthetically, this offer to pay,
having been made prior to the demand for rescission, assuming for the sake
of argument that such a demand is proper under Article 159223 of the Civil
Code, would likewise suffice to defeat private respondent's prerogative to
rescind thereunder.

There is no need to still belabor the question of whether the P50,000.00

advance payment is reimbursable to petitioner or forfeitable by private
respondent, since, on the basis of our foregoing conclusions, the matter has
ceased to be an issue. Suffice it to say that petitioner having opted to
proceed with the sale, neither may petitioner demand its reimbursement from
private respondent nor may private respondent subject it to forfeiture.
AIME D. ANG, Petitioner, G.R. No. 177874
- versus - Present:
COURT OF APPEALS AND BRUNO QUISUMBING, J., Chairperson,
SOLEDAD, Respondents.
CARPIO MORALES,
TINGA,
VELASCO, JR., and
BRION, JJ.
Promulgated:
September 29, 2008
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
CARPIO MORALES, J.:
Under a "car-swapping" scheme, respondent Bruno Soledad (Soledad) sold
his Mitsubishi GSR sedan 1982 model to petitioner Jaime Ang (Ang) by Deed
of Absolute Sale1 dated July 28, 1992. For his part, Ang conveyed to Soledad
his Mitsubishi Lancer model 1988, also by Deed of Absolute Sale2 of even
date. As Ang’s car was of a later model, Soledad paid him an additional
P55,000.00.
Ang, a buyer and seller of used vehicles, later offered the Mitsubishi GSR for
sale through Far Eastern Motors, a second-hand auto display center. The
vehicle was eventually sold to a certain Paul Bugash (Bugash) for
P225,000.00, by Deed of Absolute Sale3 dated August 14, 1992. Before the
deed could be registered in Bugash’s name, however, the vehicle was seized
by virtue of a writ of replevin4 dated January 26, 1993 issued by the Cebu
City Regional Trial Court (RTC), Branch 21 in Civil Case No. CEB-13503,
"BA Finance Corporation vs. Ronaldo and Patricia Panes," on account of the
alleged failure of Ronaldo Panes, the owner of the vehicle prior to Soledad,
to pay the mortgage debt5 constituted thereon.
To secure the release of the vehicle, Ang paid BA Finance the amount of
P62,038.476 on March 23, 1993. Soledad refused to reimburse the said
amount, despite repeated demands, drawing Ang to charge him for Estafa
with abuse of confidence before the Office of the City Prosecutor, Cebu City.
By Resolution7 of July 15, 1993, the City Prosecutor’s Office dismissed the
complaint for insufficiency of evidence, drawing Ang to file on November 9,
1993 the first8 of three successive complaints for damages against Soledad
before the RTC of Cebu City where it was docketed as Civil Case No. Ceb-
14883.
Branch 19 of the Cebu City RTC, by Order9 dated May 4, 1995, dismissed
Civil Case No. Ceb-14883 for failure to submit the controversy to barangay
conciliation.
Ang thereafter secured a certification to file action and again filed a complaint
for damages,10 docketed as Ceb-17871, with the RTC of Cebu City, Branch
14 which dismissed it, by Order11 dated March 27, 1996, on the ground that
the amount involved is not within its jurisdiction.
Ang thereupon filed on July 15, 1996 with the Municipal Trial Court in Cities
(MTCC) a complaint,12 docketed as R-36630, the subject of the instant
petition.
After trial, the MTCC dismissed the complaint on the ground of prescription,
vìz:
It appearing that the Deed of Sale to plaintiff o[f] subject vehicle was dated
and executed on 28 July 1992, the complaint before the Barangay terminated
21 September 1995 per Certification to File Action attached to the Complaint,
and this case eventually was filed with this Court on 15 July 1996, this action
has already been barred since more than six (6) months elapsed from the
delivery of the subject vehicle to the plaintiff buyer to the filing of this action,
pursuant to the aforequoted Article 1571."13 (Emphasis and underscoring
supplied)
His motion for reconsideration having been denied, Ang appealed to the
RTC, Branch 7 of which affirmed the dismissal of the complaint, albeit it
rendered judgment in favor of Ang "for the sake of justice and equity, and in
consonance with the salutary principle of non-enrichment at another’s
expense." The RTC ratiocinated:
xxxx
[I]t was error for the Court to rely on Art. 1571 of the Civil Code to declare the
action as having prescribed, since the action is not one for the enforcement
of the warranty against hidden defects. Moreover, Villostas vs. Court of
Appeals declared that the six-month prescriptive period for a redhibitory
action applies only to implied warranties. There is here an express
warranty. If at all, what applies is Art. 1144 of the Civil Code, the general
law on prescription, which states, inter alia, that actions ‘upon a written
contract’ prescribes in ten (10) years [Engineering & Machinery
Corporation vs. Court of Appeals, G.R. No. 52267, January 24, 1996].
More appropriate to the discussion would be defendant’s warranty against
eviction, which he explicitly made in the Deed of Absolute Sale: I hereby
covenant my absolute ownership to (sic) the above-described property and
the same is free from all liens and encumbrances and I will defend the same
from all claims or any claim whatsoever…"
Still the Court finds that plaintiff cannot recover under this warranty.
There is no showing of compliance with the requisites.
xxxx
Nonetheless, for the sake of justice and equity, and in consonance with
the salutary principle of non-enrichment at another’s expense,
defendant should reimburse plaintiff the P62,038.47 which on March 23,
1993 he paid BA Finance Corporation to release the mortgage on the car.
(Emphasis and underscoring supplied)14
The RTC thus disposed as follows:
Wherefore, judgment is rendered directing defendant to pay plaintiff
P62,038.47, the amount the latter paid BA Finance Corporation to release
the mortgage on the vehicle, with interest at the legal rate computed from
March 23, 1993. Except for this, the judgment in the decision of the trial
court, dated October 8, 2001 dismissing the claims of plaintiff is affirmed."
(Underscoring supplied)15
Soledad’s Motion for Reconsideration was denied by Order 16 of December
12, 2002, hence, he elevated the case to the Court of Appeals, Cebu City.
The appellate court, by the challenged Decision17 of August 30, 2006, noting
the sole issue to be resolved whether the RTC erred in directing Soledad to
pay Ang the amount the latter paid to BA Finance plus legal interest, held
that, following Goodyear Phil., Inc. v. Anthony Sy,18 Ang "cannot anymore
seek refuge under the Civil Code provisions granting award of damages for
breach of warranty against eviction for the simple fact that three years and
ten months have lapsed from the execution of the deed of sale in his favor
prior to the filing of the instant complaint." It further held:
It bears to stress that the deed of absolute sale was executed on July 28,
1992, and the instant complaint dated May 15, 1996 was received by the
MTCC on July 15, 1996.
While it is true that someone unjustly enriched himself at the expense of
herein respondent, we agree with petitioner (Soledad) that it is not he.
The appellate court accordingly reversed the RTC decision and denied the
petition.
By Resolution19 of April 25, 2007, the appellate court denied Ang’s motion for
reconsideration, it further noting that when Ang settled the mortgage debt to
BA Finance, he did so voluntarily in order to resell the vehicle, hence,
Soledad did not benefit from it as he was unaware of the mortgage
constituted on the vehicle by the previous owner.
The appellate court went on to hold that Soledad "has nothing to do with the
transaction anymore; his obligation ended when he delivered the subject
vehicle to the respondent upon the perfection of the contract of sale." And it
reiterated its ruling that the action, being one arising from breach of warranty,
had prescribed, it having been filed beyond the 6-month prescriptive period.
The appellate court brushed aside Ang’s contention that Soledad was the
proximate cause of the loss due to the latter’s failure to thoroughly examine
and verify the registration and ownership of the previous owner of the
vehicle, given that Ang is engaged in the business of buying and selling
second-hand vehicles and is therefore expected to be cautious in protecting
his rights under the circumstances.
Hence, the present recourse – petition for review on certiorari, Ang
maintaining that his cause of action had not yet prescribed when he filed the
complaint and he should not be blamed for paying the mortgage debt.
To Ang, the ruling in Goodyear v. Sy is not applicable to this case, there
being an express warranty in the herein subject Deed of Absolute Sale and,
therefore, the action based thereon prescribes in ten (10) years following
Engineering & Machinery Corp. v. CA20 which held that where there is an
express warranty in the contract, the prescriptive period is the one specified
in the contract or, in the absence thereof, the general rule on rescission of
contract.
Ang likewise maintains that he should not be blamed for paying BA Finance
and should thus be entitled to reimbursement and damages for, following
Carrascoso, Jr. v. Court of Appeals,21 in case of breach of an express
warranty, the seller is liable for damages provided that certain requisites are
met which he insists are present in the case at bar.
The resolution of the sole issue of whether the complaint had prescribed
hinges on a determination of what kind of warranty is provided in the Deed of
Absolute Sale subject of the present case.
A warranty is a statement or representation made by the seller of goods,
contemporaneously and as part of the contract of sale, having reference to
the character, quality or title of the goods, and by which he promises or
undertakes to insure that certain facts are or shall be as he then represents
them.22
Warranties by the seller may be express or implied. Art. 1546 of the Civil
Code defines express warranty as follows:
"Art. 1546. Any affirmation of fact or any promise by the seller relating
to the thing is an express warranty if the natural tendency of such
affirmation or promise is to induce the buyer to purchase the same, and
if the buyer purchases the thing relying thereon. No affirmation of the
value of the thing, nor any statement purporting to be a statement of the
seller’s opinion only, shall be construed as a warranty, unless the seller
made such affirmation or statement as an expert and it was relied upon by
the buyer."(Emphasis and underscoring supplied)
On the other hand, an implied warranty is that which the law derives by
application or inference from the nature of the transaction or the relative
situation or circumstances of the parties, irrespective of any intention of the
seller to create it.23 Among the implied warranty provisions of the Civil Code
are: as to the seller’s title (Art. 1548), against hidden defects and
encumbrances (Art. 1561), as to fitness or merchantability (Art. 1562), and
against eviction (Art. 1548).
The earlier cited ruling in Engineering & Machinery Corp. states that "the
prescriptive period for instituting actions based on a breach of express
warranty is that specified in the contract, and in the absence of such period,
the general rule on rescission of contract, which is four years (Article 1389,
Civil Code)."
As for actions based on breach of implied warranty, the prescriptive period is,
under Art. 1571 (warranty against hidden defects of or encumbrances upon
the thing sold) and Art. 1548 (warranty against eviction), six months from the
date of delivery of the thing sold.
The following provision of the Deed of Absolute Sale reflecting the kind of
warranty made by Soledad reads:
xxxx
I hereby covenant my absolute ownership to (sic) the above-described
property and the same is free from all liens and encumbrances and I will
defend the same from all claims or any claim whatsoever; will save the
vendee from any suit by the government of the Republic of the Philippines.
x x x x (Emphasis supplied)
In declaring that he owned and had clean title to the vehicle at the time the
Deed of Absolute Sale was forged, Soledad gave an implied warranty of title.
In pledging that he "will defend the same from all claims or any claim
whatsoever [and] will save the vendee from any suit by the government of
the Republic of the Philippines," Soledad gave a warranty against eviction.
Given Ang’s business of buying and selling used vehicles, he could not have
merely relied on Soledad’s affirmation that the car was free from liens and
encumbrances. He was expected to have thoroughly verified the car’s
registration and related documents.
Since what Soledad, as seller, gave was an implied warranty, the prescriptive
period to file a breach thereof is six months after the delivery of the vehicle,
following Art. 1571. But even if the date of filing of the action is reckoned
from the date petitioner instituted his first complaint for damages on
November 9, 1993, and not on July 15, 1996 when he filed the complaint
subject of the present petition, the action just the same had prescribed, it
having been filed 16 months after July 28, 1992, the date of delivery of the
vehicle.
On the merits of his complaint for damages, even if Ang invokes breach of
warranty against eviction as inferred from the second part of the earlier-
quoted provision of the Deed of Absolute Sale, the following essential
requisites for such breach, vìz:
"A breach of this warranty requires the concurrence of the following
circumstances:
(1) The purchaser has been deprived of the whole or part of the thing
sold;

(2) This eviction is by a final judgment;

(3) The basis thereof is by virtue of a right prior to the sale made by the
vendor; and

(4) The vendor has been summoned and made co-defendant in the suit
for eviction at the instance of the vendee.

In the absence of these requisites, a breach of the warranty against eviction

under Article 1547 cannot be declared." 24 (Emphasis supplied),

have not been met. For one, there is no judgment which deprived Ang of the
vehicle. For another, there was no suit for eviction in which Soledad as seller
was impleaded as co-defendant at the instance of the vendee.

Finally, even under the principle of solutio indebiti which the RTC applied,
Ang cannot recover from Soledad the amount he paid BA Finance. For, as
the appellate court observed, Ang settled the mortgage debt on his own
volition under the supposition that he would resell the car. It turned out

that he did pay BA Finance in order to avoid returning the payment made by
the ultimate buyer Bugash. It need not be stressed that Soledad did not
benefit from Ang’s paying BA Finance, he not being the one who mortgaged
the vehicle, hence, did not benefit from the proceeds thereof.

WHEREFORE, the petition is, in light of the foregoing disquisition, DENIED.

SO ORDERED.
G.R. No. 154554 November 9, 2005
GOODYEAR PHILIPPINES, INC., Petitioner,
vs.
ANTHONY SY and JOSE L. LEE, Respondents.
DECISION
PANGANIBAN, J.:
complaint must contain a concise statement of the ultimate facts constituting
the plaintiff’s cause of action. To determine whether a cause of action is
stated, the test is as follows: admitting arguendo the truth of the facts
alleged, can the court render a
_____________________
* On official leave.
** On medical leave.
valid judgment in accordance with the prayer? If the answer is "no," the
complaint does not state a cause of action and should be dismissed
forthwith. If "yes," then it does and must be given due course.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court,
assailing the June 5, 2002 Decision2 and the August 8, 2002 Resolution3 of
the Court of Appeals (CA) in CA-GR CV No. 61229. The dispositive portion
of the challenged Decision reads as follows:
"WHEREFORE, the instant appeal is GRANTED. The Order dated May 27,
1998 of the Regional Trial Court of Legazpi City, Branch 9, is hereby
REVERSED and the case is remanded to the court a quo for the appropriate
further proceedings."4
The assailed Resolution denied petitioner’s Motion for Reconsideration.
The Antecedents
The CA narrated the antecedents of the case as follows:
"The subject of this case involves a motor vehicle, particularly described as:
MAKE: 1984 Isuzu JCR 6-Wheeler
PLATE NUMBER: PEL 685
MOTOR NO.: 6BD1-371305
SERIAL NO.: JCR500BOF-21184
"The vehicle was originally owned by Goodyear Philippines, Inc. ([Goodyear])
which it purchased from Industrial and Transport Equipment, Inc. in 1983. It
had since been in the service of [Goodyear] until April 30, 1986 when it was
hijacked. This hijacking was reported to the Philippine National Police (PNP)
which issued out an alert alarm on the said vehicle as a stolen one. It was
later on recovered also in 1986.
"The vehicle was used by [Goodyear] until 1996, when it sold it to Anthony
Sy on September 12, 1996.
"Sy, in turn, sold it to Jose L. Lee on January 29, 1997. But the latter on
December 4, 1997, filed an action for rescission of contract with damages
against Sy[,] because he could not register the vehicle in his name due to the
certification from the PNP Regional Traffic Management Office in Legazpi
City that it was a stolen vehicle and the alarm covering the same was not
lifted. Instead, the PNP in Legazpi City impounded the vehicle and charged
Lee criminally.
"Upon being informed by Sy of the denial of the registration of the vehicle in
Lee’s name, [Goodyear] requested on July 10, 1997 the PNP to lift the stolen
vehicle alarm status. This notwithstanding, [Goodyear] was impleaded as
third-party defendant in the third-party complaint filed by Sy on January 9,
1998.
"A motion to dismiss was filed by [Goodyear] on March 24, 1998 on the twin
grounds that the third-party complaint failed to state a cause of action and
even if it did, such cause of action was already extinguished. An opposition
thereto was interposed by Sy on April 17, 1998.
"The Regional Trial Court [(RTC)] resolved to dismiss the third-party
complaint on the basis of the first proffered ground in its challenged Order
dated May 27, 1998. It ratiocinated:
‘A perusal of the third party complaint does not expressly show any act or
omission committed by the third party defendant which violates a right of the
third party complainant. The third party complaint failed to show that the
vehicle in question belongs to a person other than the third party defendant
at the time the said motor vehicle was sold by the third party defendant to the
third party plaintiff. On the contrary[,] the third party defendant has not denied
having sold to the third party plaintiff the said motor vehicle which had been
in its possession as owner from 1986 to 1996. The fact that the said motor
vehicle was included by the PNP in its alert status as stolen vehicle[,]
resulted only following the report by the third party defendant that it was
hijacked in 1986. But when the said motor vehicle was recovered, the third
party defendant informed the PNP about the said recovery and requested the
lifting of the alert status on it as stolen vehicle.
‘If the PNP has not removed the said vehicle from its alert status as a stolen
vehicle, [then] that does not make [Goodyear] not the owner thereof. Hence,
[Goodyear], the third party defendant, is not guilty of any breach resulting
from any flaw in the title over the said vehicle. This is confirmed by the
allegation of the third party plaintiff as answering defendant in paragraph 6 of
its Answer with Counterclaim and Affirmative Defenses dated January 9,
1998, hereunder quoted as follows:
"6. Defendant specifically denies the allegations contained in paragraph 9 of
[p]laintiff’s complaint, the truth of the matter is that [d]efendant help[ed]
plaintiff in removing the impediments in the registration and transfer of
ownership and that defendant ha[d] no knowledge of any flaw [in] the title of
Goodyear Philippines, Inc."
‘Under Rules 16, a motion to dismiss may be made on any of the following
grounds:
"g) That the pleading asserting the claim states no cause of action."
‘WHEREFORE, for failure of the third party complaint to state a cause of
action, the same is hereby ordered DISMISSED.’"5
Ruling of the Court of Appeals
In granting the appeal, the CA reasoned that the Third-Party Complaint had
stated a cause of action. First, petitioner did not make good its warranty in
the Deed of Sale: to convey the vehicle to Respondent Anthony Sy free from
all liens, encumbrances and legal impediments. The reported hijacking of the
vehicle was a legal impediment that prevented its subsequent sale.
Second, Respondent Sy had a right to protect and a warranty to enforce,
while petitioner had the corresponding obligation to honor that warranty. The
latter caused the impairment of that right, though, when the vehicle it had
sold to him was refused registration, because of the non-lifting of the alert
status issued at its instance. That petitioner had to execute all documents
necessary to confer a perfect title to him before he could seek recourse to
the courts was deemed a ludicrous condition precedent, because it could
easily refuse to fulfill that condition in order to obviate the filing of a case
against it.
Hence, this Petition.6
The Issues
Petitioner raises the following issues for the Court’s consideration:
"I.
Whether or not the Court of Appeals erred in reversing and setting aside the
decision of the Regional Trial Court, dismissing the complaint against
petitioner for lack of a cause of action.
"II.
Whether or not the Court of Appeals erred in failing to find that petitioner did
not breach any warranty in the absence of proof that at the time it sold the
subject vehicle to Sy, petitioner was not the owner thereof.
"III.
Whether or not the Court of Appeals erred in failing to find that the cause of
action, if ever it existed, was already extinguished."7
The foregoing issues actually point to one main question: did the Third-Party
Complaint state a cause of action against petitioner?
The Court’s Ruling
The Petition has merit.
Main Issue:
 Whether a Cause of Action
Was Stated in the Third-Party Complaint
A cause of action is a formal statement of the operative facts that give rise to
a remedial right.8 The question of whether the complaint states a cause of
action is determined by its averments regarding the acts committed by the
defendant.9 Thus, it "must contain a concise statement of the ultimate or
essential facts constituting the plaintiff’s cause of action."10 Failure to make a
sufficient allegation of a cause of action in the complaint "warrants its
dismissal."11
Elements of a
Cause of Action
A cause of action, which is an act or omission by which a party violates the
right of another,12 has these elements:
"1) the legal right of the plaintiff;
"2) the correlative obligation of the defendant to respect that legal right; and
"3) an act or omission of the defendant that violates such right."13
In determining whether an initiatory pleading states a cause of action, "the
test is as follows: admitting the truth of the facts alleged, can the court render
a valid judgment in accordance with the prayer?"14 To be taken into account
are only the material allegations in the complaint; extraneous facts and
circumstances or other matters aliunde are not considered.15 The court may
consider -- in addition to the complaint -- the appended annexes or
documents, other pleadings of the plaintiff, or admissions in the records.16
No Cause of Action
Against Petitioner
In the present case, the third element is missing. The Third-Party Complaint
filed by Sy is inadequate, because it did not allege any act or omission that
petitioner had committed in violation of his right to the subject vehicle. The
Complaint capitalized merely on the fact that the vehicle -- according to the
records of the PNP, which was a stranger to the case -- was "a stolen
vehicle." The pleading did not contain "sufficient notice of the cause of
action"17 against petitioner.
Without even going into the veracity of its material allegations, the Complaint
is insufficient on its face.18 No connection was laid out between the owner’s
sale of the vehicle and its impounding by the PNP. That the police did not lift
the alert status did not make petitioner less of an owner.
The Deed of Sale between petitioner and Respondent Sy was attached as
Annex A19 to the Third-Party Complaint filed by the latter against the former.
The Deed stated that petitioner was the absolute owner of the subject
vehicle. No contrary assertion was made in the Complaint. Hence, the trial
court correctly observed that the Complaint had failed to show that, at the
time of its sale to Respondent Sy, the vehicle belonged to a person other
than petitioner.20
To reiterate, the Third-Party Complaint absolutely failed to state an act or
omission of petitioner that had proximately caused injury or prejudice to Sy.
Indeed, based on that pleading alone, the latter’s claim for relief against
petitioner does not appear to exist.
Warranties Passed On
By the Vendor to the Vendee
In a contract of sale, the vendor is bound to transfer the ownership of and to
deliver the thing that is the object of the sale.21 Moreover, the implied
warranties are as follows: first, the vendor has a right to sell the thing at the
time that its ownership is to pass to the vendee, as a result of which the latter
shall from then on have and enjoy the legal and peaceful possession of the
thing;22 and, second, the thing shall be free from any charge or encumbrance
not declared or known to the vendee.23
Upon the execution of the Deed of Sale, petitioner did transfer ownership of
and deliver the vehicle to Respondent Sy.24 No other owner or possessor of
the vehicle had been alleged, and the ownership and possession rights of
petitioner over it had never been contested. The Deed of Sale executed on
September 12, 1996 showed that petitioner was the absolute owner.
Therefore, at the time that ownership passed to Sy, petitioner alone had the
right to sell the vehicle.
In the same manner, when he sold the same truck to Jose L. Lee,25
Respondent Sy was exercising his right as absolute owner. Unfortunately,
though, from the time Respondent Lee attempted to register the truck in his
name, he could not have or enjoy the legal and peaceful possession of the
vehicle, because it had been impounded by the PNP, which also opposed its
registration.
The impoundment of the vehicle and the failure to register it were clearly acts
that were not deliberately caused by petitioner, but that resulted solely from
the failure of the PNP to lift the latter’s own alarm over the vehicle. Pursuant
to Republic Act 6975,26 these matters were purely administrative and
governmental in nature. Petitioner had no authority, much less power, over
the PNP. Hence, the former did not breach its obligation as a vendor to
Respondent Sy; neither did it violate his right for which he could maintain an
action for the recovery of damages. Without this crucial allegation of a breach
or violation, no cause of action exists.27
A warranty is an affirmation of fact or any promise made by a vendor in
relation to the thing sold. As such, a warranty has a natural tendency to
induce the vendee -- relying on that affirmation or promise -- to purchase the
thing.28 The vendor impliedly warrants that that which is being sold is free
from any charge or encumbrance not declared or known to the vendee. The
decisive test is whether the vendor assumes to assert a fact of which the
vendee is ignorant.29
No Lien or Breach
of Warranty
In the present case, petitioner did not breach the implied warranty against
hidden encumbrances. The subject vehicle that had earlier been stolen by a
third party was subsequently recovered by the authorities and restored to
petitioner, its rightful owner. Whether Sy had knowledge of the loss and
subsequent recovery, the fact remained that the vehicle continued to be
owned by petitioner, free from any charge or encumbrance whatsoever.
A lien is "a legal right or interest that a creditor has in another’s property,
lasting usually until a debt or duty that it secures is satisfied."30 An
encumbrance is "a claim or liability that is attached to property or some other
right and that may lessen its value, such as a lien or mortgage." 31 A legal
impediment is a legal "hindrance or obstruction."32
The Third-Party Complaint did not allege that petitioner had a creditor with a
legal right to or interest in the subject vehicle. There was no indication either
of any debt that was secured by the vehicle. In fact, there was not even any
claim, liability or some other right attached to the vehicle that would lessen its
value. Its impoundment, as well as the refusal of its registration, was not the
hindrance or obstruction in the contemplation of law that the vendor
warranted against. Neither of those instances arose from any liability or
obligation that could be satisfied by a legal claim or charge on, or property
right to -- other than an ownership interest in -- the subject vehicle.33
No Notice of Any
Breach of Warranty
Gratia argumenti that there was a breach of the implied warranty against
hidden encumbrances, notice of the breach was not given to petitioner within
a reasonable time. Article 1586 of the Civil Code requires that notice be
given after the breach, of which Sy ought to have known. In his Third-Party
Complaint against petitioner, there was no allegation at all that respondent
had given petitioner the requisite notice.34
More important, an action for damages for a breach of implied warranties
must be brought within six months from the delivery of the thing sold.35 The
vehicle was understood to have been delivered to Sy when it was placed in
his control or possession.36 Upon execution of the Deed of Sale on
September 12, 1996, control and possession of the vehicle was transferred
to respondent. That the vehicle had been delivered is bolstered by the fact
that no contrary allegation was raised in the Third-Party Complaint. Whether
the period should be reckoned from the actual or from the constructive
delivery through a public instrument, more than six months had lapsed before
the filing of the Third-Party Complaint.
Finally, the argument that there was a breach of the implied warranty against
eviction does not hold water, for there was never any final judgment based
on either a right prior to the sale; or an act that could be imputed37 to
petitioner and deprive Sy of ownership or possession of the vehicle
purchased.
WHEREFORE, the Petition is hereby GRANTED, and the assailed Decision
and Resolution are REVERSED. The May 27, 1998 Order of the Regional
Trial Court is REINSTATED. No costs.
SO ORDERED.
G.R. No. 168646 January 12, 2011
LUZON DEVELOPMENT BANK, Petitioner,
vs.
ANGELES CATHERINE ENRIQUEZ, Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 168666
DELTA DEVELOPMENT and MANAGEMENT SERVICES, INC., Petitioner,
vs.
ANGELES CATHERINE ENRIQUEZ and LUZON DEVELOPMENT BANK,
Respondents.
DECISION
DEL CASTILLO, J.:
The protection afforded to a subdivision lot buyer under Presidential Decree
(PD) No. 957 or The Subdivision and Condominium Buyer’s Protective
Decree will not be defeated by someone who is not an innocent purchaser
for value. The lofty aspirations of PD 957 should be read in every provision of
the statute, in every contract that undermines its objects, in every transaction
which threatens its fruition. "For a statute derives its vitality from the purpose
for which it is enacted and to construe it in a manner that disregards or
defeats such purpose is to nullify or destroy the law."1
These cases involve the separate appeals of Luzon Development Bank 2
(BANK) and Delta Development and Management Services, Inc.3 (DELTA)
from the November 30, 2004 Decision of the Court of Appeals (CA), as well
as its June 22, 2005 Resolution in CA-G.R. SP No. 81280. The dispositive
portion of the assailed Decision reads:
WHEREFORE, premises considered, the Decision dated June 17, 2003 and
Resolution dated November 24, 2003 are AFFIRMED with [m]odification in
so far as Delta Development and Management Services, Inc. is liable and
directed to pay petitioner Luzon Development Bank the value of the subject
lot subject matter of the Contract to Sell between Delta Development and
Management Services, Inc. and the private respondent [Catherine Angeles
Enriquez].
SO ORDERED.4
Factual Antecedents
The BANK is a domestic financial corporation that extends loans to
subdivision developers/owners.5
Petitioner DELTA is a domestic corporation engaged in the business of
developing and selling real estate properties, particularly Delta Homes I in
Cavite. DELTA is owned by Ricardo De Leon (De Leon),6 who is the
registered owner of a parcel of land covered by Transfer Certificate of Title
(TCT) No. T-6371837 of the Registry of Deeds of the Province of Cavite,
which corresponds to Lot 4 of Delta Homes I. Said Lot 4 is the subject matter
of these cases.
On July 3, 1995, De Leon and his spouse obtained a ₱4 million loan from the
BANK for the express purpose of developing Delta Homes I.8 To secure the
loan, the spouses De Leon executed in favor of the BANK a real estate
mortgage (REM) on several of their properties,9 including Lot 4.
Subsequently, this REM was amended10 by increasing the amount of the
secured loan from ₱4 million to ₱8 million. Both the REM and the
amendment were annotated on TCT No. T-637183.11
DELTA then obtained a Certificate of Registration12 and a License to Sell13
from the Housing and Land Use Regulatory Board (HLURB).
Sometime in 1997, DELTA executed a Contract to Sell with respondent
Angeles Catherine Enriquez (Enriquez)14 over the house and lot in Lot 4 for
the purchase price of ₱614,950.00. Enriquez made a downpayment of
₱114,950.00. The Contract to Sell contained the following provisions:
That the vendee/s offered to buy and the Owner agreed to sell the above-
described property subject to the following terms and conditions to wit:
xxxx
6. That the (sic) warning shall be served upon the Vendee/s for failure to pay
x x x Provided, however, that for failure to pay three (3) successive monthly
installment payments, the Owner may consider this Contract to Sell null and
void ab initio without further proceedings or court action and all payments
shall be forfeited in favor of the Owner as liquidated damages and expenses
for documentations. x x x
That upon full payment of the total consideration if payable in cash, the
Owner shall execute a final deed of sale in favor of the Vendee/s. However, if
the term of the contract is for a certain period of time, only upon full payment 4. Ordering [DELTA] to pay complainant the amount of ₱50,000.00
of the total consideration that a final deed of sale shall be executed by the as and by way of exemplary damages;
Owner in favor of the Vendee/s.15
5. Ordering [DELTA] to pay complainant ₱10,000.00 as costs of suit;
When DELTA defaulted on its loan obligation, the BANK, instead of and
foreclosing the REM, agreed to a dation in payment or a dacion en pago. The
Deed of Assignment in Payment of Debt was executed on September 30, 6. Respondent DELTA to pay administrative fine of ₱10,000.00[22] for
1998 and stated that DELTA "assigns, transfers, and conveys and sets over violation of Section 18 of P.D. 957[23] and another ₱10,000.00 for
[to] the assignee that real estate with the building and improvements existing violation of Section 22 of P.D. 957.[24
thereon x x x in payment of the total obligation owing to [the Bank] x x x."16
Unknown to Enriquez, among the properties assigned to the BANK was the SO ORDERED.25
house and lot of Lot 4,17 which is the subject of her Contract to Sell with
DELTA. The records do not bear out and the parties are silent on whether
DELTA appealed the arbiter’s Decision to the HLURB Board of
the BANK was able to transfer title to its name. It appears, however, that the
Commissioners.26 DELTA questioned the imposition of an administrative fine
dacion en pago was not annotated on the TCT of Lot 4.18
for its alleged violation of Section 18 of PD 957. It argued that clearance was
not required for mortgages that were constituted on a subdivision project
On November 18, 1999, Enriquez filed a complaint against DELTA and the prior to registration. According to DELTA, it did not violate the terms of its
BANK before the Region IV Office of the HLURB19 alleging that DELTA license because it did not obtain a new mortgage over the subdivision
violated the terms of its License to Sell by: (a) selling the house and lots for a project. It likewise assailed the award of moral and exemplary damages to
price exceeding that prescribed in Batas Pambansa (BP) Bilang 220;20 and Enriquez on the ground that the latter has no cause of action.27
(b) failing to get a clearance for the mortgage from the HLURB. Enriquez
sought a full refund of the ₱301,063.42 that she had already paid to DELTA,
Ruling of the Board of Commissioners (Board)28
award of damages, and the imposition of administrative fines on DELTA and
the BANK.
The Board held that all developers should obtain a clearance for mortgage
from the HLURB, regardless of the date when the mortgage was secured,
In his June 1, 2000 Decision,21 HLURB Arbiter Atty. Raymundo A. Foronda
because the law does not distinguish. Having violated this legal requirement,
upheld the validity of the purchase price, but ordered DELTA to accept
DELTA was held liable to pay the administrative fine.
payment of the balance of ₱108,013.36 from Enriquez, and (upon such
payment) to deliver to Enriquez the title to the house and lot free from liens
and encumbrances. The dispositive portion reads: The Board upheld the validity of the contract to sell between DELTA and
Enriquez despite the alleged violation of the price ceilings in BP 220. The
Board held that DELTA and Enriquez were presumed to have had a meeting
WHEREFORE, premises considered, a decision is hereby rendered as
of the minds on the object of the sale and the purchase price. Absent any
follows:
circumstance vitiating Enriquez’consent, she was presumed to have willingly
and voluntarily agreed to the higher purchase price; hence, she was bound
1. Ordering [DELTA] to accept complainant[’]s payments in the by the terms of the contract.
amount of ₱108,013.36 representing her balance based on the
maximum selling price of ₱375,000.00;
The Board, however, deleted the arbiter’s award of damages to Enriquez on
the ground that the latter was not free from liability herself, given that she
2. Upon full payment, ordering Delta to deliver the title in favor of the was remiss in her monthly amortizations to DELTA.
complainant free from any liens and encumbrances;
The dispositive portion of the Board’s Decision reads:
3. Ordering [DELTA] to pay complainant the amount of ₱50,000.00
as and by way of moral damages;
Wherefore, in view of the foregoing, the Office below’s decision dated June
01, 2000 is hereby modified to read as follows:
1. Ordering [Enriquez] to pay [DELTA] the amount due from the time
she suspended payment up to filing of the complaint with 12%
interest thereon per annum; thereafter the provisions of the Contract
to Sell shall apply until full payment is made;
2. Ordering [DELTA] to pay an [a]dministrative [f]ine of ₱10,000.00
for violation of its license to sell and for violation of Section 18 of P.D.
957.
SO ORDERED. Quezon City.29
Enriquez moved for a reconsideration of the Board’s Decision30 upholding the
contractual purchase price. She maintained that the price for Lot 4 should not
exceed the price ceiling provided in BP 220.31lawph!l
Finding Enriquez’s arguments as having already been passed upon in the
decision, the Board denied reconsideration. The board, however, modified its
decision, with respect to the period for the imposition of interest payments.
The Board’s resolution32 reads:
WHEREFORE, premises considered, to [sic] directive No. 1 of the dispositive
portion of the decision of our decision [sic] is MODIFIED as follows:
1. Ordering complainant to pay respondent DELTA the amount due
from the time she suspended (sic) at 12% interest per annum,
reckoned from finality of this decision[,] thereafter the provisions of
the Contract to Sell shall apply until full payment is made.
In all other respects, the decision is AFFIRMED.
SO ORDERED.33
Both Enriquez and the BANK appealed to the Office of the President (OP).34
The BANK disagreed with the ruling upholding Enriquez’s Contract to Sell;
and insisted on its ownership over Lot 4. It argued that it has become
impossible for DELTA to comply with the terms of the contract to sell and to
deliver Lot 4’s title to Enriquez given that DELTA had already relinquished all
its rights to Lot 4 in favor of the BANK35 via the dation in payment.
Meanwhile, Enriquez insisted that the Board erred in not applying the ceiling
price as prescribed in BP 220.36
Ruling of the Office of the President37
The OP adopted by reference the findings of fact and conclusions of law of
the HLURB Decisions, which it affirmed in toto.
Enriquez filed a motion for reconsideration, insisting that she was entitled to
a reduction of the purchase price, in order to conform to the provisions of BP
220.38 The motion was denied for lack of merit.39
Only the BANK appealed the OP’s Decision to the CA.40 The BANK
reiterated that DELTA can no longer deliver Lot 4 to Enriquez because
DELTA had sold the same to the BANK by virtue of the dacion en pago.41 As
an alternative argument, in case the appellate court should find that DELTA
retained ownership over Lot 4 and could convey the same to Enriquez, the
BANK prayed that its REM over Lot 4 be respected such that DELTA would
have to redeem it first before it could convey the same to Enriquez in
accordance with Section 2542 of PD 957.43
The BANK likewise sought an award of exemplary damages and attorney’s
fees in its favor because of the baseless suit filed by Enriquez against it. 44
Ruling of the Court of Appeals45
The CA ruled against the validity of the dacion en pago executed in favor of
the BANK on the ground that DELTA had earlier relinquished its ownership
over Lot 4 in favor of Enriquez via the Contract to Sell. 46
Since the dacion en pago is invalid with respect to Lot 4, the appellate court
held that DELTA remained indebted to the BANK to the extent of Lot 4’s
value. Thus, the CA ordered DELTA to pay the corresponding value of Lot 4
to the BANK.47
The CA also rejected the BANK’s argument that, before DELTA can deliver
the title to Lot 4 to Enriquez, DELTA should first redeem the mortgaged
property from the BANK. The CA held that the BANK does not have a first
lien on Lot 4 because its real estate mortgage over the same had already
been extinguished by the dacion en pago. Without a mortgage, the BANK
cannot require DELTA to redeem Lot 4 prior to delivery of title to Enriquez.48
The CA denied the BANK’s prayer for the award of exemplary damages and Enriquez’s waiver
attorney’s fees for lack of factual and legal basis.49
Enriquez did not file comments59 or memoranda in both cases; instead, she
Both DELTA50 and the BANK51 moved for a reconsideration of the CA’s manifested that she will just await the outcome of the case.60
Decision, but both were denied.52
Issues
Hence, these separate petitions of the BANK and DELTA.
The following are the issues raised by the two petitions:
Petitioner Delta’s arguments53
1. Whether the Contract to Sell conveys ownership;
DELTA assails the CA Decision for holding that DELTA conveyed its
ownership over Lot 4 to Enriquez via the Contract to Sell. DELTA points out 2. Whether the dacion en pago extinguished the loan obligation,
that the Contract to Sell contained a condition that ownership shall only be such that DELTA has no more obligations to the BANK;
transferred to Enriquez upon the latter’s full payment of the purchase price to
DELTA. Since Enriquez has yet to comply with this suspensive condition, 3. Whether the BANK is entitled to damages and attorney’s fees for
ownership is retained by DELTA.54 As the owner of Lot 4, DELTA had every being compelled to litigate; and
right to enter into a dation in payment to extinguish its loan obligation to the
BANK. The BANK’s acceptance of the assignment, without any reservation
4. What is the effect of Enriquez’s failure to appeal the OP’s Decision
or exception, resulted in the extinguishment of the entire loan obligation;
regarding her obligation to pay the balance on the purchase price.
hence, DELTA has no more obligation to pay the value of Enriquez’s house
and lot to the BANK.55
Our Ruling
DELTA prays for the reinstatement of the OP Decision.
Mortgage contract void
The BANK’s arguments56
As the HLURB Arbiter and Board of Commissioners both found, DELTA
violated Section 18 of PD 957 in mortgaging the properties in Delta Homes I
Echoing the argument of DELTA, the BANK argues that the Contract to Sell
(including Lot 4) to the BANK without prior clearance from the HLURB. This
did not involve a conveyance of DELTA’s ownership over Lot 4 to Enriquez.
point need not be belabored since the parties have chosen not to appeal the
The Contract to Sell expressly provides that DELTA retained ownership over
administrative fine imposed on DELTA for violation of Section 18.
Lot 4 until Enriquez paid the full purchase price. Since Enriquez has not yet
made such full payment, DELTA retained ownership over Lot 4 and could
validly convey the same to the BANK via dacion en pago.57 This violation of Section 18 renders the mortgage executed by DELTA void.
We have held before that "a mortgage contract executed in breach of Section
18 of [PD 957] is null and void."61 Considering that "PD 957 aims to protect
Should the dacion en pago over Lot 4 be invalidated and the property
innocent subdivision lot and condominium unit buyers against fraudulent real
ordered to be delivered to Enriquez, the BANK contends that DELTA should
estate practices," we have construed Section 18 thereof as "prohibitory and
pay the corresponding value of Lot 4 to the BANK. It maintains that the loan
acts committed contrary to it are void."62
obligation extinguished by the dacion en pago only extends to the value of
the properties delivered; if Lot 4 cannot be delivered to the BANK, then the
loan obligation of DELTA remains to the extent of Lot 4’s value.58 Because of the nullity of the mortgage, neither DELTA nor the BANK could
assert any right arising therefrom. The BANK’s loan of ₱8 million to DELTA
has effectively become unsecured due to the nullity of the mortgage. The
The BANK prays to be declared the rightful owner of the subject house and
said loan, however, was eventually settled by the two contracting parties via
lot and asks for an award of exemplary damages and attorney’s fees.
a dation in payment. In the appealed Decision, the CA invalidated this dation
in payment on the ground that DELTA, by previously entering into a Contract
to Sell, had already conveyed its ownership over Lot 4 to Enriquez and could
no longer convey the same to the BANK. This is error, prescinding from a
wrong understanding of the nature of a contract to sell.
Contract to sell does not transfer ownership
Both parties are correct in arguing that the Contract to Sell executed by
DELTA in favor of Enriquez did not transfer ownership over Lot 4 to
Enriquez. A contract to sell is one where the prospective seller reserves the
transfer of title to the prospective buyer until the happening of an event, such
as full payment of the purchase price. What the seller obliges himself to do is
to sell the subject property only when the entire amount of the purchase price
has already been delivered to him. "In other words, the full payment of the
purchase price partakes of a suspensive condition, the non-fulfillment of
which prevents the obligation to sell from arising and thus, ownership is
retained by the prospective seller without further remedies by the prospective
buyer."63 It does not, by itself, transfer ownership to the buyer.64
In the instant case, there is nothing in the provisions of the contract entered
into by DELTA and Enriquez that would exempt it from the general definition
of a contract to sell. The terms thereof provide for the reservation of DELTA’s
ownership until full payment of the purchase price; such that DELTA even
reserved the right to unilaterally void the contract should Enriquez fail to pay
three successive monthly amortizations.
Since the Contract to Sell did not transfer ownership of Lot 4 to Enriquez,
said ownership remained with DELTA. DELTA could then validly transfer
such ownership (as it did) to another person (the BANK). However, the
transferee BANK is bound by the Contract to Sell and has to respect
Enriquez’s rights thereunder. This is because the Contract to Sell, involving a
subdivision lot, is covered and protected by PD 957. One of the protections
afforded by PD 957 to buyers such as Enriquez is the right to have her
contract to sell registered with the Register of Deeds in order to make it
binding on third parties. Thus, Section 17 of PD 957 provides:
Section 17. Registration. All contracts to sell, deeds of sale, and other similar
instruments relative to the sale or conveyance of the subdivision lots and
condominium units, whether or not the purchase price is paid in full, shall be
registered by the seller in the Office of the Register of Deeds of the province
or city where the property is situated.
x x x x (Emphasis supplied.)
The purpose of registration is to protect the buyers from any future
unscrupulous transactions involving the object of the sale or contract to sell,
whether the purchase price therefor has been fully paid or not. Registration
of the sale or contract to sell makes it binding on third parties; it serves as a
notice to the whole world that the property is subject to the prior right of the
buyer of the property (under a contract to sell or an absolute sale), and
anyone who wishes to deal with the said property will be held bound by such
prior right.
While DELTA, in the instant case, failed to register Enriquez’s Contract to
Sell with the Register of Deeds, this failure will not prejudice Enriquez or
relieve the BANK from its obligation to respect Enriquez’s Contract to Sell.
Despite the non-registration, the BANK cannot be considered, under the
circumstances, an innocent purchaser for value of Lot 4 when it accepted the
latter (together with other assigned properties) as payment for DELTA’s
obligation. The BANK was well aware that the assigned properties, including
Lot 4, were subdivision lots and therefore within the purview of PD 957. It
knew that the loaned amounts were to be used for the development of
DELTA’s subdivision project, for this was indicated in the corresponding
promissory notes. The technical description of Lot 4 indicates its location,
which can easily be determined as included within the subdivision
development. Under these circumstances, the BANK knew or should have
known of the possibility and risk that the assigned properties were already
covered by existing contracts to sell in favor of subdivision lot buyers. As
observed by the Court in another case involving a bank regarding a
subdivision lot that was already subject of a contract to sell with a third party:
[The Bank] should have considered that it was dealing with a property
subject of a real estate development project. A reasonable person,
particularly a financial institution x x x, should have been aware that, to
finance the project, funds other than those obtained from the loan could have
been used to serve the purpose, albeit partially. Hence, there was a need to
verify whether any part of the property was already intended to be the subject
of any other contract involving buyers or potential buyers. In granting the
loan, [the Bank] should not have been content merely with a clean title,
considering the presence of circumstances indicating the need for a thorough
investigation of the existence of buyers x x x. Wanting in care and prudence,
the [Bank] cannot be deemed to be an innocent mortgagee. x x x65
Further, as an entity engaged in the banking business, the BANK is required
to observe more care and prudence when dealing with registered properties.
The Court cannot accept that the BANK was unaware of the Contract to Sell
existing in favor of Enriquez. In Keppel Bank Philippines, Inc. v. Adao,66 we
held that a bank dealing with a property that is already subject of a contract
to sell and is protected by the provisions of PD 957, is bound by the contract
to sell (even if the contract to sell in that case was not registered). In the
Court’s words:
It is true that persons dealing with registered property can rely solely on the
certificate of title and need not go beyond it. However, x x x, this rule does
not apply to banks. Banks are required to exercise more care and prudence
than private individuals in dealing even with registered properties for their
business is affected with public interest. As master of its business, petitioner
should have sent its representatives to check the assigned properties before
signing the compromise agreement and it would have discovered that
respondent was already occupying one of the condominium units and that a
contract to sell existed between [the vendee] and [the developer]. In our
view, petitioner was not a purchaser in good faith and we are constrained to
rule that petitioner is bound by the contract to sell.67
Bound by the terms of the Contract to Sell, the BANK is obliged to respect
the same and honor the payments already made by Enriquez for the
purchase price of Lot 4. Thus, the BANK can only collect the balance of the
purchase price from Enriquez and has the obligation, upon full payment, to
deliver to Enriquez a clean title over the subject property.68
Dacion en pago extinguished the loan obligation
The BANK then posits that, if title to Lot 4 is ordered delivered to Enriquez,
DELTA has the obligation to pay the BANK the corresponding value of Lot 4.
According to the BANK, the dation in payment extinguished the loan only to
the extent of the value of the thing delivered. Since Lot 4 would have no
value to the BANK if it will be delivered to Enriquez, DELTA would remain
indebted to that extent.
We are not persuaded. Like in all contracts, the intention of the parties to the
dation in payment is paramount and controlling. The contractual intention
determines whether the property subject of the dation will be considered as
the full equivalent of the debt and will therefore serve as full satisfaction for
the debt. "The dation in payment extinguishes the obligation to the extent of
the value of the thing delivered, either as agreed upon by the parties or as
may be proved, unless the parties by agreement, express or implied, or by
their silence, consider the thing as equivalent to the obligation, in which case
the obligation is totally extinguished."69
In the case at bar, the Dacion en Pago executed by DELTA and the BANK
indicates a clear intention by the parties that the assigned properties would
serve as full payment for DELTA’s entire obligation:
KNOW ALL MEN BY THESE PRESENTS:
This instrument, made and executed by and between:
xxxx
THAT, the ASSIGNOR acknowledges to be justly indebted to the ASSIGNEE
in the sum of ELEVEN MILLION EIGHT HUNDRED SEVENTY-EIGHT
THOUSAND EIGHT HUNDRED PESOS (₱11,878,800.00), Philippine
Currency as of August 25, 1998. Therefore, by virtue of this instrument,
ASSIGNOR hereby ASSIGNS, TRANSFERS, and CONVEYS AND SETS
OVER [TO] the ASSIGNEE that real estate with the building and
improvements existing thereon, more particularly described as follows:
xxxx
of which the ASSIGNOR is the registered owner being evidenced by TCT
No. x x x issued by the Registry of Deeds of Trece Martires City.
THAT, the ASSIGNEE does hereby accept this ASSIGNMENT IN PAYMENT
OF THE TOTAL OBLIGATION owing to him by the ASSIGNOR as above-
stated;70
Without any reservation or condition, the Dacion stated that the assigned
properties served as full payment of DELTA’s "total obligation" to the BANK.
The BANK accepted said properties as equivalent of the loaned amount and
as full satisfaction of DELTA’s debt. The BANK cannot complain if, as it
turned out, some of those assigned properties (such as Lot 4) are covered by
existing contracts to sell. As noted earlier, the BANK knew that the assigned
properties were subdivision lots and covered by PD 957. It was aware of the
nature of DELTA’s business, of the location of the assigned properties within
DELTA’s subdivision development, and the possibility that some of the
properties may be subjects of existing contracts to sell which enjoy protection
under PD 957. Banks dealing with subdivision properties are expected to
conduct a thorough due diligence review to discover the status of the
properties they deal with. It may thus be said that the BANK, in accepting the
assigned properties as full payment of DELTA’s "total obligation," has
assumed the risk that some of the assigned properties (such as Lot 4) are
covered by contracts to sell which it is bound to honor under PD 957.
A dacion en pago is governed by the law of sales.71 Contracts of sale come
with warranties, either express (if explicitly stipulated by the parties) or
implied (under Article 1547 et seq. of the Civil Code). In this case, however,
the BANK does not even point to any breach of warranty by DELTA in SO ORDERED.
connection with the Dation in Payment. To be sure, the Dation in Payment
has no express warranties relating to existing contracts to sell over the
assigned properties. As to the implied warranty in case of eviction, it is
waivable72 and cannot be invoked if the buyer knew of the risks or danger of
eviction and assumed its consequences.73 As we have noted earlier, the
BANK, in accepting the assigned properties as full payment of DELTA’s "total
obligation," has assumed the risk that some of the assigned properties are
covered by contracts to sell which must be honored under PD 957.

Award of damages

There is nothing on record that warrants the award of exemplary damages 74

as well as attorney’s fees75 in favor of the BANK.

Balance to be paid by Enriquez

As already mentioned, the Contract to Sell in favor of Enriquez must be

respected by the BANK.1avvphi1 Upon Enriquez’s full payment of the
balance of the purchase price, the BANK is bound to deliver the title over Lot
4 to her. As to the amount of the balance which Enriquez must pay, we adopt
the OP’s ruling thereon which sustained the amount stipulated in the
Contract to Sell. We will not review Enriquez’s initial claims about the
supposed violation of the price ceiling in BP 220, since this issue was no
longer pursued by the parties, not even by Enriquez, who chose not to file
the required pleadings76 before the Court. The parties were informed in the
Court’s September 5, 2007 Resolution that issues that are not included in
their memoranda shall be deemed waived or abandoned. Since Enriquez did
not file a memorandum in either petition, she is deemed to have waived the
said issue.

WHEREFORE, premises considered, the appealed November 30, 2004

Decision of the Court of Appeals, as well as its June 22, 2005 Resolution in
CA-G.R. SP No. 81280 are hereby AFFIRMED with the MODIFICATIONS
that Delta Development and Management Services, Inc. is NOT LIABLE TO
PAY Luzon Development Bank the value of the subject lot; and respondent
Angeles Catherine Enriquez is ordered to PAY the balance of the purchase
price and the interests accruing thereon, as decreed by the Court of Appeals,
to the Luzon Development Bank, instead of Delta Development and
Management Services, Inc., within thirty (30) days from finality of this
Decision. The Luzon Development Bank is ordered to DELIVER a CLEAN
TITLE to Angeles Catherine Enriquez upon the latter’s full payment of the
balance of the purchase price and the accrued interests.