FIRST DIVISION.
.
TOMAS K. CHUA,
Petitioner,
G.R.
No.
119255
April 9, 2003 - versus -
COURT OF APPEALS
AND ENCARNACION
VALDES-CHOY,
Respondents.
D E C I S I O N
CARPIO,
J.:
The
Case
This is a petition for
review on certiorari seeking to reverse the decision[1]
of the Court of Appeals in an action for specific performance[2]
filed in the Regional Trial Court[3]
by petitioner Tomas K. Chua ("Chua") against respondent Encarnacion
Valdes-Choy
("Valdes-Choy"). Chua sought to compel Valdes-Choy to consummate
the sale of her paraphernal house and lot in Makati City.
The
Court of Appeals reversed the decision[4]
rendered by the trial court in favor of Chua.chanrobles virtuallaw libraryred
The Facts
Valdes-Choy advertised
for sale her paraphernal house and lot ("Property") with an area of 718
square meters located at No. 40 Tampingco Street corner Hidalgo Street,
San Lorenzo Village, Makati City. The Property is covered by
Transfer
Certificate of Title No. 162955 ("TCT") issued by the Register of Deeds
of Makati City in the name of Valdes-Choy. Chua
responded
to the advertisement. After several meetings, Chua and
Valdes-Choy
agreed on a purchase price of P10,800,000.00 payable in cash.chanrobles virtuallaw libraryred
On 30 June 1989, Valdes-Choy
received from Chua a check for P100,000.00. The receipt
("Receipt")
evidencing the transaction, signed by Valdes-Choy as seller, and Chua
as
buyer, reads:chanrobles virtuallaw libraryred
30 June 1989
R E C E I P T
RECEIVED from MR. TOMAS
K. CHUA PBCom Check No. 206011 in the amount of ONE HUNDRED THOUSAND
PESOS
ONLY (P100,000.00) as EARNEST MONEY for the sale of the property
located
at 40 Tampingco cor. Hidalgo, San Lorenzo Village, Makati, Metro Manila
(Area : 718 sq. meters).chanrobles virtuallaw libraryred
The balance of TEN MILLION
SEVEN HUNDRED THOUSAND (P10,700,000.00) is payable on or before 15[5]
July 1989. Capital Gains Tax for the account of the seller.
Failure to pay balance on or before 15 July 1989 forfeits the earnest
money.
This provided that all papers are in proper order.[6]chanrobles virtuallaw libraryred
CONFORME:
ENCARNACION VALDES
Seller
TOMAS K. CHUA
Buyer
x x x.[7]
In the morning of 13
July 1989, Chua secured from Philippine Bank of Commerce ("PBCom") a
manager’s
check for P480,000.00. Strangely, after securing the manager’s
check,
Chua immediately gave PBCom a verbal stop payment order claiming that
this
manager’s check for P480,000.00 "was lost and/or misplaced."[8]
On the same day, after receipt of Chua’s verbal order, PBCom Assistant
Vice–President Julie C. Pe notified in writing[9]
the PBCom Operations Group of Chua’s stop payment order.chanrobles virtuallaw libraryred
In the afternoon of
13 July 1989, Chua and Valdes-Choy met with their respective counsels
to
execute the necessary documents and arrange the payments.[10]
Valdes-Choy as vendor and Chua as vendee signed two Deeds of Absolute
Sale
("Deeds of Sale"). The first Deed of Sale covered the house and
lot
for the purchase price of P8,000,000.00.[11]
The second Deed of Sale covered the furnishings, fixtures and movable
properties
contained in the house for the purchase price of P2,800,000.00.[12]
The parties also computed the capital gains tax to amount to
P485,000.00.chanrobles virtuallaw libraryred
On 14 July 1989, the
parties met again at the office of Valdes-Choy’s counsel. Chua
handed
to Valdes-Choy the PBCom manager’s check for P485,000.00 so Valdes-Choy
could pay the capital gains tax as she did not have sufficient
funds
to pay the tax. Valdes-Choy issued a receipt showing that Chua
had
a remaining balance of P10,215,000.00 after deducting the advances made
by Chua. This receipt reads:chanrobles virtuallaw libraryred
July 14, 1989
Received from MR. TOMAS
K. CHUA PBCom. Check No. 325851 in the amount of FOUR HUNDRED EIGHTY
FIVE
THOUSAND PESOS ONLY (P485,000.00) as Partial Payment for the sale of
the
property located at 40 Tampingco Cor. Hidalgo St., San Lorenzo Village,
Makati, Metro Manila (Area 718 sq. meters), covered by TCT No. 162955
of
the Registry of Deeds of Makati, Metro Manila.chanrobles virtuallaw libraryred
The total purchase price
of the above-mentioned property is TEN MILLION EIGHT HUNDRED
THOUSAND
PESOS only, broken down as follows:
SELLING
PRICE
P10,800,000.00
EARNEST
MONEY
P100,000.00
PARTIAL
PAYMENT
485,000.00
BALANCE DUE
TO
585,000.00
ENCARNACION
VALDEZ-CHOY
P10,215,000.00
VVVVVVVVVVVV
PLUS P80,000.00 for
documentary
stamps paid in advance
by
seller
80,000.00
P10,295,000.00
x x x.[13]
On the same day, 14
July 1989, Valdes-Choy, accompanied by Chua, deposited the P485,000.00
manager’s check to her account with Traders Royal Bank. She then
purchased a Traders Royal Bank manager’s check for P480,000.00 payable
to the Commissioner of Internal Revenue for the capital gains
tax.
Valdes-Choy and Chua returned to the office of Valdes-Choy’s counsel
and
handed the Traders Royal Bank check to the counsel who undertook to pay
the capital gains tax. It was then also that Chua showed to
Valdes-Choy
a PBCom manager’s check for P10,215,000.00 representing the balance of
the purchase price. Chua, however, did not give this PBCom
manager’s check to Valdes-Choy because the TCT was still registered in
the name of Valdes-Choy. Chua required that the Property be
registered first in his name before he would turn over the check to
Valdes-Choy.
This angered Valdes-Choy who tore up the Deeds of Sale, claiming that
what
Chua required was not part of their agreement.[14]chanrobles virtuallaw libraryred
On the same day, 14
July 1989, Chua confirmed his stop payment order by submitting to PBCom
an affidavit of loss[15]
of the PBCom Manager’s Check for P480,000.00. PBCom Assistant
Vice-President
Pe, however, testified that the manager’s check was nevertheless
honored
because Chua subsequently verbally advised the bank that he was lifting
the stop-payment order due to his "special arrangement" with the bank.[16]chanrobles virtuallaw libraryred
On 15 July 1989, the
deadline for the payment of the balance of the purchase price,
Valdes-Choy
suggested to her counsel that to break the impasse Chua should deposit
in escrow the P10,215,000.00 balance.[17]
Upon such deposit, Valdes-Choy was willing to cause the issuance of a
new
TCT in the name of Chua even without receiving the balance of the
purchase
price. Valdes-Choy believed this was the only way she could
protect
herself if the certificate of title is transferred in the name of the
buyer
before she is fully paid. Valdes-Choy’s counsel promised to relay
her suggestion to Chua and his counsel, but nothing came out of it.chanrobles virtuallaw libraryred
On 17 July 1989, Chua
filed a complaint for specific performance against Valdes-Choy which
the
trial court dismissed on 22 November 1989. On 29 November 1989,
Chua
re-filed his complaint for specific performance with damages.
After
trial in due course, the trial court rendered judgment in favor of
Chua,
the dispositive portion of which reads:chanrobles virtuallaw libraryred
Applying the provisions
of Article 1191 of the new Civil Code, since this is an action for
specific
performance where the plaintiff, as vendee, wants to pursue the sale,
and
in order that the fears of the defendant may be allayed and still have
the sale materialize, judgment is hereby rendered:chanrobles virtuallaw libraryred
I. 1. Ordering
the defendant to deliver to the Court not later than five (5) days from
finality of this decision:
a.
the owner’s duplicate copy of TCT No. 162955 registered in
her name;
b.
the covering tax declaration and the latest tax receipt evidencing
payment
of real estate taxes;
c.
the two deeds of sale prepared by Atty. Mark Bocobo on July 13, 1989,
duly
executed by defendant in favor of the plaintiff, whether notarized or
not;
and
2. Within five (5) days
from compliance by the defendant of the above, ordering the plaintiff
to
deliver to the Branch Clerk of Court of this Court the sum of
P10,295,000.00
representing the balance of the consideration (with the sum of
P80,000.00
for stamps already included);
3. Ordering the Branch
Clerk of this Court or her duly authorized representative:
a. to make representations
with the BIR for the payment of capital gains tax for the sale of
the house and lot (not to include the fixtures) and to pay the same
from
the funds deposited with her;
b. to present the deed
of sale executed in favor of the plaintiff, together with the
owner‘s
duplicate copy of TCT No. 162955, real estate tax receipt and proof of
payment of capital gains tax, to the Makati Register of Deeds;
c. to pay the required
registration fees and stamps (if not yet advanced by the defendant) and
if needed update the real estate taxes all to be taken from the funds
deposited
with her; and
d. surrender to the
plaintiff the new Torrens title over the property;
4. Should the defendant
fail or refuse to surrender the two deeds of sale over the property and
the fixtures that were prepared by Atty. Mark Bocobo and executed by
the
parties, the Branch Clerk of Court of this Court is hereby authorized
and
empowered to prepare, sign and execute the said deeds of sale for and
in
behalf of the defendant;chanrobles virtuallaw libraryred
5. Ordering the defendant
to pay to the plaintiff;
a. the sum of P100,000.00
representing moral and compensatory damages for the plaintiff; and
b. the sum of P50,000.00
as reimbursement for plaintiff’s attorney’s fees and cost of litigation.cralaw:red
6. Authorizing the Branch
Clerk of Court of this Court to release to the plaintiff, to be taken
from
the funds said plaintiff has deposited with the Court, the amounts
covered
at paragraph 5 above;
7. Ordering the release
of the P10,295,000.00 to the defendant after deducting therefrom the
following
amounts:
a. the capital gains
tax paid to the BIR;
b. the expenses incurred
in the registration of the sale, updating of real estate taxes, and
transfer
of title; and
c. the amounts paid
under this judgment to the plaintiff.cralaw:red
8.
Ordering the defendant to surrender to the plaintiff or his
representatives
the premises with the furnishings intact within seventy-two (72) hours
from receipt of the proceeds of the sale;
9.
No interest is imposed on the payment to be made by the plaintiff
because
he had always been ready to pay the balance and the premises had been
used
or occupied by the defendant for the duration of this case.cralaw:red
II. In the event
that specific performance cannot be done for reasons or causes
not
attributable to the plaintiff, judgment is hereby rendered ordering the
defendant:
1.
To refund to the plaintiff the earnest money in the sum of P100,000.00,
with interest at the legal rate from June 30, 1989 until fully
paid;
2.
To refund to the plaintiff the sum of P485,000.00 with interest at the
legal rate from July 14, 1989 until fully paid;
3.
To pay to the plaintiff the sum of P700,000.00 in the concept of moral
damages and the additional sum of P300,000.00 in the concept of
exemplary
damages; and
4.
To pay to the plaintiff the sum of P100,000.00 as reimbursement of
attorney’s
fees and cost of litigation.cralaw:red
SO ORDERED.[18]
Valdes-Choy appealed
to the Court of Appeals which reversed the decision of the trial
court.
The Court of Appeals handed down a new judgment, disposing as follows:chanrobles virtuallaw libraryred
WHEREFORE, the decision
appealed from is hereby REVERSED and SET ASIDE, and another one is
rendered:
(1) Dismissing Civil
Case No. 89-5772;
(2) Declaring the amount
of P100,000.00, representing earnest money as forfeited in favor
of defendant-appellant;
(3) Ordering defendant-appellant
to return/refund the amount of P485,000.00 to plaintiff-appellee
without
interest;
(4) Dismissing defendant-appellant’s
compulsory counter-claim; and
(5) Ordering the plaintiff-appellee
to pay the costs.[19]
Hence, the instant petition.cralaw:red
The Trial Court’s Ruling
The trial court found
that the transaction reached an impasse when Valdes-Choy wanted to be
first
paid the full consideration before a new TCT covering the Property is
issued
in the name of Chua. On the other hand, Chua did not want to pay
the consideration in full unless a new TCT is first issued in his
name.
The trial court faulted Valdes-Choy for this impasse.chanrobles virtuallaw libraryred
The trial court held
that the parties entered into a contract to sell on 30 June 1989, as
evidenced
by the Receipt for the P100,000.00 earnest
money.
The trial court pointed out that the contract to sell was subject to
the
following conditions: (1) the balance of P10,700,000.00 was
payable not later than 15 July 1989; (2) Valdes-Choy may
stay
in the Property until 13 August 1989; and (3) all papers must be "in
proper
order" before full payment is made.chanrobles virtuallaw libraryred
The trial court held
that Chua complied with the terms of the contract to sell. Chua
showed
that he was prepared to pay Valdes-Choy the consideration in full on 13
July 1989, two days before the deadline of 15 July 1989. Chua
even
added P80,000.00 for the documentary stamp tax. He purchased from
PBCom two manager’s checks both payable to Valdes-Choy. The first
check for P485,000.00 was to pay the capital gains tax. The second
check
for P10,215,000.00 was to pay the balance of the purchase price.
The trial court was convinced that Chua demonstrated his capacity and
readiness
to pay the balance on 13 July 1989 with the production of the PBCom
manager’s
check for P10,215,000.00.chanrobles virtuallaw libraryred
On the other hand, the
trial court found that Valdes-Choy did not perform her correlative
obligation
under the contract to sell to put all the papers in order. The
trial
court noted that as of 14 July 1989, the capital gains tax had not been
paid because Valdes-Choy’s counsel who was suppose to pay the tax did
not
do so. The trial court declared that Valdes-Choy was in a
position
to deliver only the owner’s duplicate copy of the TCT, the signed Deeds
of Sale, the tax declarations, and the latest realty tax receipt. The
trial
court concluded that these documents were all useless without the
Bureau
of Internal Revenue receipt evidencing full payment of the capital
gains
tax which is a pre-requisite to the issuance of a new certificate of
title
in Chua’s name.chanrobles virtuallaw libraryred
The trial court held
that Chua’s non-payment of the balance of P10,215,000.00 on the agreed
date was due to Valdes-Choy’s fault.cralaw:red
The Court of Appeals’
Ruling
In reversing the trial
court, the Court of Appeals ruled that Chua’s stance to pay the full
consideration
only after the Property is registered in his name was not the agreement
of the parties. The Court of Appeals noted that there is a whale
of difference between the phrases "all papers are in proper order" as
written
on the Receipt, and "transfer of title" as demanded by Chua.chanrobles virtuallaw libraryred
Contrary to the findings
of the trial court, the Court of Appeals found that all the papers were
in order and that Chua had no valid reason not to pay on the agreed
date.
Valdes-Choy was in a position to deliver the owner’s duplicate copy of
the TCT, the signed Deeds of Sale, the tax declarations, and the latest
realty tax receipt. The Property was also free from all liens and
encumbrances.chanrobles virtuallaw libraryred
The Court of Appeals
declared that the trial court erred in considering Chua’s showing to
Valdes-Choy
of the PBCom manager’s check for P10,215,000.00 as compliance with
Chua’s
obligation to pay on or before 15 July 1989. The Court of Appeals
pointed out that Chua did not want to give up the check unless "the
property
was already in his name."[20]
Although Chua demonstrated his capacity to pay, this could not be
equated
with actual payment which he refused to do.
chanrobles virtuallaw libraryred
The Court of Appeals
did not consider the non-payment of the capital gains tax as failure by
Valdes-Choy to put the papers "in proper order." The Court of
Appeals
explained that the payment of the capital gains tax has no bearing on
the
validity of the Deeds of Sale. It is only after the deeds are
signed
and notarized can the final computation and payment of the
capital gains tax be made.chanrobles virtuallaw libraryred
The Issues
In his Memorandum, Chua
raises the following issues:
1.
WHETHER THERE IS A PERFECTED CONTRACT OF SALE OF IMMOVABLE PROPERTY;
2.
WHETHER VALDES-CHOY MAY RESCIND THE CONTRACT IN CONTROVERSY
WITHOUT
OBSERVING THE PROVISIONS OF ARTICLE 1592 OF THE NEW CIVIL CODE;
chanrobles virtuallaw libraryred
3.
WHETHER THE WITHHOLDING OF PAYMENT OF THE BALANCE OF THE PURCHASE PRICE
ON THE PART OF CHUA (AS VENDEE) WAS JUSTIFIED BY THE CIRCUMSTANCES
OBTAINING
AND MAY NOT BE RAISED AS GROUND FOR THE AUTOMATIC RESCISSION OF THE
CONTRACT
OF SALE;
chanrobles virtuallaw libraryred
4.
WHETHER THERE IS LEGAL AND FACTUAL BASIS FOR THE COURT OF APPEALS TO
DECLARE
THE "EARNEST MONEY" IN THE AMOUNT OF P100,000.00 AS FORFEITED IN FAVOR
OF VALDES-CHOY;chanrobles virtuallaw libraryred
5.
WHETHER THE TRIAL COURT’S JUDGMENT IS IN ACCORD WITH LAW, REASON AND
EQUITY
DESERVING OF BEING REINSTATED AND AFFIRMED.[21]
The issues for our resolution
are: (a) whether the transaction between Chua and Valdes-Choy is
a perfected contract of sale or a mere contract to sell, and (b)
whether
Chua can compel Valdes-Choy to cause the issuance of a new TCT in
Chua’s
name even before payment of the full purchase price.chanrobles virtuallaw libraryred
The Court’s Ruling
The petition is bereft
of merit.cralaw:red
There is no dispute
that Valdes-Choy is the absolute owner of the Property which is
registered
in her name under TCT No.162955, free from all liens and
encumbrances.
She was ready, able and willing to deliver to Chua the owner’s
duplicate
copy of the TCT, the signed Deeds of Sale, the tax declarations, and
the
latest realty tax receipt. There is also no dispute that on 13
July
1989, Valdes-Choy received PBCom Check No. 206011 for P100,000.00 as
earnest
money from Chua. Likewise, there is no controversy that the
Receipt
for the P100,000.00 earnest money embodied the terms of the binding
contract
between Valdes-Choy and Chua.chanrobles virtuallaw libraryred
Further, there is no
controversy that as embodied in the Receipt, Valdes-Choy and Chua
agreed on the following terms: (1) the balance of P10,215,000.00 is
payable
on or before 15 July 1989; (2) the capital gains tax is for the account
of Valdes-Choy; and (3) if Chua fails to pay the balance of
P10,215,000.00
on or before 15 July 1989, Valdes-Choy has the right to forfeit the
earnest
money, provided that "all papers are in proper order." On
13
July 1989, Chua gave Valdes-Choy the PBCom manager’s check for
P485,000.00
to pay the capital gains tax.chanrobles virtuallaw libraryred
Both the trial and appellate
courts found that the balance of P10,215,000.00 was not actually paid
to
Valdes-Choy on the agreed date. On 13 July 1989, Chua did show to
Valdes-Choy the PBCom manager’s check for P10,215,000.00, with
Valdes-Choy
as payee. However, Chua refused to give this check to Valdes-Choy
until a new TCT covering the Property is registered in Chua’s
name.
Or, as the trial court put it, until there is proof of payment of the
capital
gains tax which is a pre-requisite to the issuance of a new certificate
of title.chanrobles virtuallaw libraryred
First and Second Issues:
Contract of Sale or Contract to Sell?
Chua has consistently
characterized his agreement with Valdez-Choy, as evidenced by the
Receipt,
as a contract to sell and not a contract of sale. This has been
Chua’s
persistent contention in his pleadings before the trial and appellate
courts.chanrobles virtuallaw libraryred
Chua now pleads for
the first time that there is a perfected contract of sale rather than a
contract to sell. He contends that there was no reservation
in the contract of sale that Valdes-Choy shall retain title to the
Property
until after the sale. There was no agreement for an automatic
rescission
of the contract in case of Chua’s default. He argues for
the
first time that his payment of earnest money and its acceptance by
Valdes-Choy
precludes the latter from rejecting the binding effect of the contract
of sale. Thus, Chua claims that Valdes-Choy may not validly
rescind
the contract of sale without following Article 1592[22]
of the Civil Code which requires demand, either judicially or by
notarial
act, before rescission may take place.chanrobles virtuallaw libraryred
Chua’s new theory is
not well taken in light of well-settled jurisprudence. An issue
not
raised in the court below cannot be raised for the first time on
appeal,
as this is offensive to the basic rules of fair play, justice and due
process.[23]
In addition, when a party deliberately adopts a certain theory, and the
case is tried and decided on that theory in the court below, the party
will not be permitted to change his theory on appeal. To permit
him
to change his theory will be unfair to the adverse party.[24]chanrobles virtuallaw libraryred
Nevertheless, in order
to put to rest all doubts on the matter, we hold that the agreement
between
Chua and Valdes-Choy, as evidenced by the Receipt, is a contract to
sell
and not a contract of sale. The distinction between a contract of
sale and contract to sell is well-settled:chanrobles virtuallaw libraryred
In a contract of sale,
the title to the property passes to the vendee upon the delivery of the
thing sold; in a contract to sell, ownership is, by agreement, reserved
in the vendor and is not to pass to the vendee until full payment of
the
purchase price. Otherwise stated, in a contract of sale, the
vendor
loses ownership over the property and cannot recover it until and
unless
the contract is resolved or rescinded; whereas, in a contract to sell,
title is retained by the vendor until full payment of the price.
In the latter contract, payment of the price is a positive suspensive
condition,
failure of which is not a breach but an event that prevents the
obligation
of the vendor to convey title from becoming effective.[25]chanrobles virtuallaw libraryred
A perusal of the Receipt
shows that the true agreement between the parties was a contract to
sell.
Ownership over the Property was retained by Valdes-Choy and was not to
pass to Chua until full payment of the purchase price.chanrobles virtuallaw libraryred
First, the Receipt provides
that the earnest money shall be forfeited in case the buyer fails to
pay
the balance of the purchase price on or before 15 July
1989.
In such event, Valdes-Choy can sell the Property to other interested
parties.
There is in effect a right reserved in favor of Valdes-Choy not to push
through with the sale upon Chua’s failure to remit the balance of the
purchase
price before the deadline. This is in the nature of a stipulation
reserving ownership in the seller until full payment of the purchase
price.
This is also similar to giving the seller the right to rescind
unilaterally
the contract the moment the buyer fails to pay within a fixed period.[26]chanrobles virtuallaw libraryred
Second, the agreement
between Chua and Valdes-Choy was embodied in a receipt rather than in a
deed of sale, ownership not having passed between them. The
signing
of the Deeds of Sale came later when Valdes-Choy was under the
impression
that Chua was about to pay the balance of the purchase price. The
absence of a formal deed of conveyance is a strong indication that the
parties did not intend immediate transfer of ownership, but only a
transfer
after full payment of the purchase price.[27]chanrobles virtuallaw libraryred
Third, Valdes-Choy retained
possession of the certificate of title and all other documents relative
to the sale. When Chua refused to pay Valdes-Choy the balance of
the purchase price, Valdes-Choy also refused to turn-over to Chua these
documents.[28]
These are additional proof that the agreement did not transfer to Chua,
either by actual or constructive delivery, ownership of the Property.[29]chanrobles virtuallaw libraryred
It is true that Article
1482 of the Civil Code provides that "Whenever earnest money is given
in
a contract of sale, it shall be considered as part of the price and
proof
of the perfection of the contract." However, this article speaks of
earnest
money given in a contract of sale. In this case, the earnest
money
was given in a contract to sell. The Receipt evidencing the
contract
to sell stipulates that the earnest money is a forfeitable deposit, to
be forfeited if the sale is not consummated should Chua fail to pay the
balance of the purchase price. The earnest money forms part of the
consideration
only if the sale is consummated upon full payment of the purchase
price.
If there is a contract of sale, Valdes-Choy should have the right to
compel
Chua to pay the balance of the purchase price. Chua, however, has
the right to walk away from the transaction, with no obligation to pay
the balance, although he will forfeit the earnest money. Clearly,
there is no contract of sale. The earnest money was given in a
contract
to sell, and thus Article 1482, which speaks of a contract of sale, is
not applicable.chanrobles virtuallaw libraryred
Since the agreement
between Valdes-Choy and Chua is a mere contract to sell, the full
payment
of the purchase price partakes of a suspensive condition. The
non-fulfillment
of the condition prevents the obligation to sell from arising and
ownership
is retained by the seller without further remedies by the buyer.[30]
Article 1592 of the Civil Code permits the buyer to pay, even after the
expiration of the period, as long as no demand for rescission of the
contract
has been made upon him either judicially or by notarial act.
However,
Article 1592 does not apply to a contract to sell where the seller
reserves
the ownership until full payment of the price.[31]
chanrobles virtuallaw libraryred
Third and Fourth
Issues: Withholding of Payment of the Balance of the Purchase Price and
Forfeiture of the Earnest Moneychanrobles virtuallaw libraryred
Chua insists that he
was ready to pay the balance of the purchase price but withheld payment
because Valdes-Choy did not fulfill her contractual obligation to put
all
the papers in "proper order." Specifically, Chua claims that
Valdes-Choy
failed to show that the capital gains tax had been paid after he had
advanced
the money for its payment. For the same reason, he contends that
Valdes-Choy may not forfeit the earnest money even if he did not pay on
time.chanrobles virtuallaw libraryred
There is a variance
of interpretation on the phrase "all papers are in proper order" as
written
in the Receipt. There is no dispute though, that as long as the
papers
are "in proper order," Valdes-Choy has the right to forfeit the earnest
money if Chua fails to pay the balance before the deadline.chanrobles virtuallaw libraryred
The trial court interpreted
the phrase to include payment of the capital gains tax, with the Bureau
of Internal Revenue receipt as proof of payment. The Court of
Appeals
held otherwise. We quote verbatim the ruling of the Court of
Appeals
on this matter:chanrobles virtuallaw libraryred
The trial court made
much fuss in connection with the payment of the capital gains tax, of
which
Section 33 of the National Internal Revenue Code of 1977, is the
governing
provision insofar as its computation is concerned. The trial
court
failed to consider Section 34-(a) of the said Code, the last sentence
of
which provides, that "the amount realized from the sale or other
disposition of property shall be the sum of money received plus
the
fair market value of the property (other than money)
received;"
and that the computation of the capital gains tax can only be finally
assessed
by the Commission on Internal Revenue upon the presentation of the
Deeds
of Absolute Sale themselves, without which any premature
computation
of the capital gains tax becomes of no moment. At any
rate, the computation and payment of the capital gains tax has no
bearing
insofar as the validity and effectiveness of the deeds of sale in
question
are concerned, because it is only after the contracts of sale are
finally
executed in due form and have been duly notarized that the final
computation
of the capital gains tax can follow as a matter of course.
Indeed,
exhibit D, the PBC Check No. 325851, dated July 13, 1989, in the amount
of P485,000.00, which is considered as part of the consideration of the
sale, was deposited in the name of appellant, from which she in turn,
purchased
the corresponding check in the amount representing the sum to be paid
for
capital gains tax and drawn in the name of the Commissioner of
Internal
Revenue, which then allayed any fear or doubt that that amount would
not
be paid to the Government after all.[32]chanrobles virtuallaw libraryred
We see no reason to
disturb the ruling of the Court of Appeals.cralaw:red
In a contract to sell,
the obligation of the seller to sell becomes demandable only upon the
happening
of the suspensive condition. In this case, the suspensive
condition
is the full payment of the purchase price by Chua. Such full
payment
gives rise to Chua’s right to demand the execution of the contract of
sale.
chanrobles virtuallaw libraryred
It is only upon the
existence of the contract of sale that the seller becomes obligated to
transfer the ownership of the thing sold to the buyer. Article 1458 of
the Civil Code defines a contract of sale as follows:chanrobles virtuallaw libraryred
Art. 1458. By
the contract of sale one of the contracting parties obligates himself
to
transfer the ownership of and to deliver a determinate thing, and the
other
to pay therefor a price certain in money or its equivalent.chanrobles virtuallaw libraryred
x x x. (Emphasis
supplied) chanrobles virtuallaw libraryred
Prior to the existence
of the contract of sale, the seller is not obligated to transfer
ownership
to the buyer, even if there is a contract to sell between
them.
It is also upon the existence of the contract of sale that the buyer is
obligated to pay the purchase price to the seller. Since the
transfer
of ownership is in exchange for the purchase price, these obligations
must
be simultaneously fulfilled at the time of the execution of the
contract
of sale, in the absence of a contrary stipulation.
chanrobles virtuallaw libraryred
In a contract of sale,
the obligations of the seller are specified in Article 1495 of the
Civil
Code, as follows:
Art. 1495. The vendor
is bound to transfer the ownership of and deliver, as well as warrant
the
thing which is the object of the sale.(Emphasis supplied)
chanrobles virtuallaw libraryred
The obligation of the
seller is to transfer to the buyer ownership of the thing sold.
In
the sale of real property, the seller is not obligated to transfer in
the
name of the buyer a new certificate of title, but rather to transfer
ownership
of the real property. There is a difference between transfer of
the
certificate of title in the name of the buyer, and transfer of
ownership
to the buyer. The buyer may become the owner of the real
property
even if the certificate of title is still registered in the name of the
seller. As between the seller and buyer, ownership is transferred not
by
the issuance of a new certificate of title in the name of the buyer but
by the execution of the instrument of sale in a public document.chanrobles virtuallaw libraryred
In a contract of sale,
ownership is transferred upon delivery of the thing sold. As the
noted civil law commentator Arturo M. Tolentino explains it, -
chanrobles virtuallaw libraryred
Delivery is not only
a necessary condition for the enjoyment of the thing, but is a mode of
acquiring dominion and determines the transmission of ownership, the
birth
of the real right. The delivery, therefore, made in any of the
forms
provided in articles 1497 to 1505 signifies that the transmission of
ownership
from vendor to vendee has taken place. The delivery of the thing
constitutes
an indispensable requisite for the purpose of acquiring ownership. Our
law does not admit the doctrine of transfer of property by mere
consent;
the ownership, the property right, is derived only from delivery of the
thing. x x x.[33]
(Emphasis supplied) chanrobles virtuallaw libraryred
In a contract of sale
of real property, delivery is effected when the instrument of sale is
executed
in a public document. When the deed of absolute sale is signed by
the parties and notarized, then delivery of the real property is deemed
made by the seller to the buyer. Article 1498 of the Civil Code
provides
that –
chanrobles virtuallaw libraryred
Art. 1498. When the
sale is made through a public instrument, the execution thereof shall
be
equivalent to the delivery of the thing which is the object of the
contract,
if from the deed the contrary does not appear or cannot clearly be
inferred.chanrobles virtuallaw libraryred
x x x.cralaw:red
Similarly, in a contract
to sell real property, once the seller is ready, able and willing to
sign
the deed of absolute sale before a notary public, the seller is in a
position
to transfer ownership of the real property to the buyer. At this
point, the seller complies with his undertaking to sell the real
property
in accordance with the contract to sell, and to assume all the
obligations
of a vendor under a contract of sale pursuant to the relevant articles
of the Civil Code. In a contract to sell, the seller is not
obligated to transfer ownership to the buyer. Neither is the seller
obligated
to cause the issuance of a new certificate of title in the name of the
buyer. However, the seller must put all his papers in proper
order
to the point that he is in a position to transfer ownership of the real
property to the buyer upon the signing of the contract of sale.chanrobles virtuallaw libraryred
In the instant case,
Valdes-Choy was in a position to comply with all her obligations as a
seller
under the contract to sell. First, she already signed the Deeds
of
Sale in the office of her counsel in the presence of the buyer.
Second,
she was prepared to turn-over the owner’s duplicate of the TCT to the
buyer,
along with the tax declarations and latest realty tax receipt.
Clearly,
at this point Valdes-Choy was ready, able and willing to transfer
ownership
of the Property to the buyer as required by the contract to sell, and
by
Articles 1458 and 1495 of the Civil Code to consummate the contract of
sale.chanrobles virtuallaw libraryred
Chua, however, refused
to give to Valdes-Choy the PBCom manager’s check for the balance of the
purchase price. Chua imposed the condition that a new TCT should
first be issued in his name, a condition that is found neither in the
law
nor in the contract to sell as evidenced by the Receipt. Thus, at
this point Chua was not ready, able and willing to pay the full
purchase
price which is his obligation under the contract to sell. Chua
was
also not in a position to assume the principal obligation of a vendee
in
a contract of sale, which is also to pay the full purchase price at the
agreed time. Article 1582 of the Civil Code provides that –
Art. 1582. The
vendee is bound to accept delivery and to pay the price of the thing
sold
at the time and place stipulated in the contract.cralaw:red
x x x. (Emphasis
supplied)
In this case, the contract
to sell stipulated that Chua should pay the balance of the purchase
price
"on or before 15 July 1989." The signed Deeds of Sale also
stipulated that the buyer shall pay the balance of the purchase price
upon
signing of the deeds. Thus, the Deeds of Sale, both signed
by Chua, state as follows:
Deed of Absolute Sale
covering the lot:
xxx
For and in consideration
of the sum of EIGHT MILLION PESOS (P8,000,000.00), Philippine Currency,
receipt of which in full is hereby acknowledged by the VENDOR from the
VENDEE, the VENDOR sells, transfers and conveys unto the VENDEE, his
heirs,
successors and assigns, the said parcel of land, together with the
improvements
existing thereon, free from all liens and encumbrances.[34]
(Emphasis supplied) chanrobles virtuallaw libraryred
Deed of Absolute Sale
covering the furnishings:
xxx
For and in consideration
of the sum of TWO MILLION EIGHT HUNDRED THOUSAND PESOS (P2,800,000.00),
Philippine Currency, receipt of which in full is hereby acknowledged by
the VENDOR from the VENDEE, the VENDOR sells, transfers and conveys
unto
the VENDEE, his heirs, successors and assigns, the said furnitures,
fixtures
and other movable properties thereon, free from all liens and
encumbrances.[35]
(Emphasis
supplied)chanrobles virtuallaw libraryred
However, on the agreed
date, Chua refused to pay the balance of the purchase price as required
by the contract to sell, the signed Deeds of Sale, and Article 1582 of
the Civil Code. Chua was therefore in default and has only
himself
to blame for the rescission by Valdes-Choy of the contract to sell.chanrobles virtuallaw libraryred
Even if measured under
existing usage or custom, Valdes-Choy had all her papers "in proper
order."
Article 1376 of the Civil Code provides that:chanrobles virtuallaw libraryred
Art. 1376. The usage
or custom of the place shall be borne in mind in the interpretation of
the ambiguities of a contract, and shall fill the omission of
stipulations
which are ordinarily established.chanrobles virtuallaw libraryred
Customarily, in the
absence of a contrary agreement, the submission by an individual seller
to the buyer of the following papers would complete a sale of real
estate:
(1) owner’s duplicate copy of the Torrens title;[36]
(2) signed deed of absolute sale; (3) tax declaration; and (3) latest
realty
tax receipt. The buyer can retain the amount for the capital
gains
tax and pay it upon authority of the seller, or the seller can pay the
tax, depending on the agreement of the parties.chanrobles virtuallaw libraryred
The buyer has more interest
in having the capital gains tax paid immediately since this is a
pre-requisite
to the issuance of a new Torrens title in his name.
Nevertheless,
as far as the government is concerned, the capital gains tax remains a
liability of the seller since it is a tax on the seller’s gain from the
sale of the real estate. Payment of the capital gains tax,
however,
is not a pre-requisite to the transfer of ownership to the buyer.
The transfer of ownership takes effect upon the signing and
notarization
of the deed of absolute sale.chanrobles virtuallaw libraryred
The recording of the
sale with the proper Registry of Deeds[37]
and the transfer of the certificate of title in the name of the buyer
are
necessary only to bind third parties to the transfer of ownership.[38]
As between the seller and the buyer, the transfer of ownership takes
effect
upon the execution of a public instrument conveying the real estate.[39]
Registration of the sale with the Registry of Deeds, or the issuance of
a new certificate of title, does not confer ownership on the
buyer.
Such registration or issuance of a new certificate of title is not one
of the modes of acquiring ownership.[40]chanrobles virtuallaw libraryred
In this case, Valdes-Choy
was ready, able and willing to submit to Chua all the papers that
customarily
would complete the sale, and to pay as well the capital gains
tax.
On the other hand, Chua’s condition that a new TCT be first issued in
his
name before he pays the balance of P10,215,000.00, representing 94.58%
of the purchase price, is not customary in a sale of real estate.
Such a condition, not specified in the contract to sell as evidenced by
the Receipt, cannot be considered part of the "omissions of
stipulations
which are ordinarily established" by usage or custom.[41]
What is increasingly becoming customary is to deposit in escrow the
balance
of the purchase price pending the issuance of a new certificate of
title
in the name of the buyer. Valdes-Choy suggested this solution but
unfortunately, it drew no response from Chua.chanrobles virtuallaw libraryred
Chua had no reason to
fear being swindled. Valdes-Choy was prepared to turn-over to him
the owner’s duplicate copy of the TCT, the signed Deeds of Sale, the
tax
declarations, and the latest realty tax receipt. There was no
hindrance
to paying the capital gains tax as Chua himself had advanced the money
to pay the same and Valdes-Choy had procured a manager’s check payable
to the Bureau of Internal Revenue covering the amount. It was
only
a matter of time before the capital gains tax would be paid. Chua
acted precipitately in filing the action for specific performance a
mere
two days after the deadline of 15 July 1989 when there was an
impasse.
While this case was dismissed on 22 November 1989, he did not waste any
time in re-filing the same on 29 November 1989.chanrobles virtuallaw libraryred
Accordingly, since Chua
refused to pay the consideration in full on the agreed date, which is a
suspensive condition, Chua cannot compel Valdes-Choy to consummate the
sale of the Property. Article 1181 of the Civil Code provides
that
-chanrobles virtuallaw libraryred
ART. 1181. In
conditional obligations, the acquisition of rights, as well as the
extinguishment
or loss of those already acquired shall depend upon the happening of
the
event which constitutes the condition.chanrobles virtuallaw libraryred
Chua acquired no right
to compel Valdes-Choy to transfer ownership of the Property to him
because
the suspensive condition - the full payment of the purchase price - did
not happen. There is no correlative obligation on the part of
Valdes-Choy
to transfer ownership of the Property to Chua. There
is also no obligation on the part of Valdes-Choy to cause the issuance
of a new TCT in the name of Chua since unless expressly stipulated,
this
is not one of the obligations of a vendor.
chanrobles virtuallaw libraryred
WHEREFORE, the Decision
of the Court of Appeals in CA-G.R. CV No. 37652 dated 23 February 1995
is AFFIRMED in toto.chanrobles virtuallaw libraryred
SO ORDERED.chanrobles virtuallaw libraryred
Davide, Jr., C.J.,
(Chairman), Vitug, Ynares-Santiago, and Azcuna, JJ.,
concur.chan
robles virtual law library
____________________________
Endnotes:
[1]
In CA-G.R. CV No. 37652, dated 23 February 1995, penned by Associate
Justice
Artemon D. Luna with Associate Justices Cancio C. Garcia and Godardo A.
Jacinto concurring.
[2]
Civil Case No. 89-5772.chanrobles virtuallaw libraryred
[3]
Branch 142, Makati, National Capital Judicial Region, presided by Judge
Salvador P. De Guzman, Jr.
[4]
Dated 29 August 1991.chanrobles virtuallaw libraryred
[5]
The typewritten figure "30" was corrected in ink to "15".chanrobles virtuallaw libraryred
[6]
The italicized portions were also handwritten in ink and initialed by
Chua.
[7]
Annex
"A," Records, p. 7.chanrobles virtuallaw libraryred
[8]
TSN, 24 July 1990, pp. 20-28.chanrobles virtuallaw libraryred
[9]
Exhibit "8," Records, p. 140.chanrobles virtuallaw libraryred
[10]
TSN, 25 January 1990, p. 87.chanrobles virtuallaw libraryred
[11]
Exhibit "B," Records, pp. 107-109.chanrobles virtuallaw libraryred
[12]
Exhibit "C," Records, pp. 110-112.chanrobles virtuallaw libraryred
[13]
Records, p. 73.chanrobles virtuallaw libraryred
[14]
TSN, 25 January 1990, p. 226.chanrobles virtuallaw libraryred
[15]
Exhibit "9," Records, p. 141.chanrobles virtuallaw libraryred
[16]
TSN, 24 July 1989, p. 37.chanrobles virtuallaw libraryred
[17]
TSN, 5 February 1990, pp. 37-38.chanrobles virtuallaw libraryred
[18]
Rollo, pp. 71-72.chanrobles virtuallaw libraryred
[19]
Ibid., p. 62.chanrobles virtuallaw libraryred
[20]
Rollo, p. 60.chanrobles virtuallaw libraryred
[21]
Ibid., p. 203.chanrobles virtuallaw libraryred
[22]
Art. 1592. In the sale of immovable property, even though it may
have been stipulated that upon failure to pay the price at the time
agreed
upon the rescission of the contract shall of right take place, the
vendee
may pay, even after the expiration of the period, as long as no demand
for rescission of the contract has been made upon him either judicially
or by a notarial act. After the demand, the court may not grant
him
a new term.chanrobles virtuallaw libraryred
[23]
Rivera v. Court of Appeals, G.R. No. 44111, 10 August 1989, 176 SCRA
169.chanrobles virtuallaw libraryred
[24]
FMIC v. Court of Appeals, G.R. No. 85141, 28 November 1989, 179 SCRA
638.chanrobles virtuallaw libraryred
[25]
Salazar v. Court of Appeals, G.R. No. 118203, 5 July 1996, 258
SCRA
317.chanrobles virtuallaw libraryred
[26]
Philippine National Bank v. Court of Appeals, G.R. No. 119580, 26
September
1996, 262 SCRA 464.
[27]
Alfonso v. Court of Appeals, G.R. No. 63745, 8 June 1990, 186 SCRA 400.chanrobles virtuallaw libraryred
[28]
TSN, 5 February 1990, pp. 33-34.chanrobles virtuallaw libraryred
[29]
Salazar v. Court of Appeals, supra, see note 25.chanrobles virtuallaw libraryred
[30]
Roque v. Lapuz, G.R. No. L-32811, 31 March 1980, 96 SCRA 741.
[31]
Alfonso v. Court of Appeals, supra, see note 27.chanrobles virtuallaw libraryred
[32]
Rollo, pp. 60-61.chanrobles virtuallaw libraryred
[33]
ARTURO M. TOLENTINO, CIVIL CODE OF THE PHILIPPINES, VOL. V, p. 51
(1992).
[34]
Exhibit "B," Records, pp. 51-53.chanrobles virtuallaw libraryred
[35]
Exhibit "C," Records, pp. 54-54-(A).chanrobles virtuallaw libraryred
[36]
Section 53 of PD No. 1529 provides:chanroblesvirtuallawlibrarychanrobles virtuallaw libraryred
Section
53. Presentation of owner's duplicate upon entry of new
certificate.
- No voluntary instrument shall be registered by the Register of
Deeds, unless the owner's duplicate certificate is presented with such
instrument, except in cases expressly provided for in this Decree or
upon
order of the court, for cause shown.chanrobles virtuallaw libraryred
The
production of the owner's duplicate certificate, whenever any voluntary
instrument is presented for registration, shall be conclusive authority
from the registered owner to the Register of Deeds to enter a new
certificate
or to make a memorandum of registration in accordance with such
instrument,
and the new certificate or memorandum shall be binding upon the
registered
owner and upon all persons claiming under him, in favor of every
purchaser
for value and in good faith.chanrobles virtuallaw libraryred
x
x x.chanrobles virtuallaw libraryred
[37]
Garcia v. Court of Appeals, G.R. Nos. L-48971 and 49011, 22
January
1980, 95 SCRA 380.
[38]
Sections 51 and 52, Property Registration Decree (PD No.1529).chanrobles virtuallaw libraryred
[39]
Sapto v. Fabiana, 103 Phil. 658 (1958); Abuyo, et al. v. De Suazo, 124
Phil.1138 (1966); Philippine Suburban Development Corp. v. Auditor
General,
G.R. No. L-19545, 18 April 1975, 63 SCRA 397.
[40]
Bollozos v. Yu Tieng Su, G.R. No. L-29442, 11 November 1987, 155 SCRA
506.chanrobles virtuallaw libraryred
[41]
Mirasol v. Yusay, et al., 120 Phil. 407 (1964).chanrobles virtuallaw libraryred
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