HEIRS OF ARTURO REYES, represented by Evelyn R.

San
Buenaventura, Petitioners, v. ELENA SOCCO-BELTRAN, Respondent.

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court,

assailing the Decision1 dated 31 January 2006 rendered by the Court of Appeals
in CA-G.R. SP No. 87066, which affirmed the Decision2 dated 30 June 2003 of the
Office of the President, in O.P. Case No. 02-A-007, approving the application of
respondent Elena Socco-Beltran to purchase the subject property.

The subject property in this case is a parcel of land originally identified as Lot No.
6-B, situated in Zamora Street, Dinalupihan, Bataan, with a total area of 360
square meters. It was originally part of a larger parcel of land, measuring 1,022
square meters, allocated to the Spouses Marcelo Laquian and Constancia Socco
(Spouses Laquian), who paid for the same with Japanese money. When Marcelo
died, the property was left to his wife Constancia. Upon Constancia's subsequent
death, she left the original parcel of land, along with her other property, with her
heirs - her siblings, namely: Filomena Eliza Socco, Isabel Socco de Hipolito,
Miguel R. Socco, and Elena Socco-Beltran.3 Pursuant to an unnotarized document
entitled "Extrajudicial Settlement of the Estate of the Deceased Constancia R.
Socco," executed by Constancia's heirs sometime in 1965, the parcel of land was
partitioned into three lots–Lot No. 6-A, Lot No. 6-B, and Lot No. 6-C.4 The
subject property, Lot No. 6-B, was adjudicated to respondent, but no title had
been issued in her name.

On 25 June 1998, respondent Elena Socco-Beltran filed an application for the

purchase of Lot No. 6-B before the Department of Agrarian Reform (DAR),
alleging that it was adjudicated in her favor in the extra-judicial settlement of
Constancia Socco's estate.5

Petitioners herein, the heirs of the late Arturo Reyes, filed their protest to
respondent's petition before the DAR on the ground that the subject property was
sold by respondent's brother, Miguel R. Socco, in favor of their father, Arturo
Reyes, as evidenced by the Contract to Sell, dated 5 September 1954, stipulating
that:6

That I am one of the co-heirs of the Estate of the deceased Constancia Socco;
and that I am to inherit as such a portion of her lot consisting of Four Hundred
Square Meters (400) more or less located on the (sic) Zamora St., Municipality of
Dinalupihan, Province of Bataan, bounded as follows:

xxx

That for or in consideration of the sum of FIVE PESOS (P5.00) per square meter,
hereby sell, convey and transfer by way of this conditional sale the said 400
sq.m. more or less unto Atty. Arturo C. Reyes, his heirs, administrator and
assigns x x x. (Emphasis supplied.)

Petitioners averred that they took physical possession of the subject property in
1954 and had been uninterrupted in their possession of the said property since
then.
Legal Officer Brigida Pinlac of the DAR Bataan Provincial Agrarian Reform Office
conducted an investigation, the results of which were contained in her Report/
Recommendation dated 15 April 1999. Other than recounting the afore-
mentioned facts, Legal Officer Pinlac also made the following findings in her
Report/Recommendation:7

Further investigation was conducted by the undersigned and based on the

documentary evidence presented by both parties, the following facts were
gathered: that the house of [the] Reyes family is adjacent to the landholding in
question and portion of the subject property consisting of about 15 meters [were]
occupied by the heirs of Arturo Reyes were a kitchen and bathroom [were]
constructed therein; on the remaining portion a skeletal form made of hollow
block[s] is erected and according to the heirs of late Arturo Reyes, this was
constructed since the year (sic) 70's at their expense; that construction of the
said skeletal building was not continued and left unfinished which according to the
affidavit of Patricia Hipolito the Reyes family where (sic) prevented by Elena
Socco in their attempt of occupancy of the subject landholding; (affidavit of
Patricia Hipolito is hereto attached as Annex "F"); that Elena Socco cannot
physically and personally occupy the subject property because of the skeletal
building made by the Reyes family who have been requesting that they be paid
for the cost of the construction and the same be demolished at the expense of
Elena Socco; that according to Elena Socco, [she] is willing to waive her right on
the portion where [the] kitchen and bathroom is (sic) constructed but not the
whole of Lot [No.] 6-B adjudicated to her; that the Reyes family included the
subject property to the sworn statement of value of real properties filed before
the municipality of Dinalupihan, Bataan, copies of the documents are hereto
attached as Annexes "G" and "H"; that likewise Elena Socco has been
continuously and religiously paying the realty tax due on the said property.

In the end, Legal Officer Pinlac recommended the approval of respondent's

petition for issuance of title over the subject property, ruling that respondent was
qualified to own the subject property pursuant to Article 1091 of the New Civil
Code.8 Provincial Agrarian Reform Officer (PARO) Raynor Taroy concurred in the
said recommendation in his Indorsement dated 22 April 1999.9

In an Order dated 15 September 1999, DAR Regional Director Nestor R. Acosta,

however, dismissed respondent's petition for issuance of title over the subject
property on the ground that respondent was not an actual tiller and had
abandoned the said property for 40 years; hence, she had already renounced her
right to recover the same.10 The dispositive part of the Order reads:

1. DISMISSING the claims of Elena Socco-Beltran, duly represented by Myrna

Socco for lack of merit;

2. ALLOCATING Lot No. 6-B under Psd-003-008565 with an area of 360 square
meters, more or less, situated Zamora Street, Dinalupihan, Bataan, in favor of
the heirs of Arturo Reyes.

3. ORDERING the complainant to refrain from any act tending to disturb the
peaceful possession of herein respondents.

4. DIRECTING the MARO of Dinalupihan, Bataan to process the pertinent

documents for the issuance of CLOA in favor of the heirs of Arturo Reyes.11
Respondent filed a Motion for Reconsideration of the foregoing Order, which was
denied by DAR Regional Director Acosta in another Order dated 15 September
1999.12

Respondent then appealed to the Office of the DAR Secretary. In an Order, dated
9 November 2001, the DAR Secretary reversed the Decision of DAR Regional
Director Acosta after finding that neither petitioners' predecessor-in-interest,
Arturo Reyes, nor respondent was an actual occupant of the subject property.
However, since it was respondent who applied to purchase the subject property,
she was better qualified to own said property as opposed to petitioners, who did
not at all apply to purchase the same. Petitioners were further disqualified from
purchasing the subject property because they were not landless. Finally, during
the investigation of Legal Officer Pinlac, petitioners requested that respondent
pay them the cost of the construction of the skeletal house they built on the
subject property. This was construed by the DAR Secretary as a waiver by
petitioners of their right over the subject property.13 In the said Order, the DAR
Secretary ordered that:

WHEREFORE, premises considered, the September 15, 1999 Order is hereby

SET ASIDE and a new Order is hereby issued APPROVING the application to
purchase Lot [No.] 6-B of Elena Socco-Beltran.14

Petitioners sought remedy from the Office of the President by appealing the 9
November 2001 Decision of the DAR Secretary. Their appeal was docketed as
O.P. Case No. 02-A-007. On 30 June 2003, the Office of the President rendered
its Decision denying petitioners' appeal and affirming the DAR Secretary's
Decision.15 The fallo of the Decision reads:

WHEREFORE, premises considered, judgment appealed from is AFFIRMED and

the instant appeal DISMISSED.16

Petitioners' Motion for Reconsideration was likewise denied by the Office of the
President in a Resolution dated 30 September 2004.17 In the said Resolution, the
Office of the President noted that petitioners failed to allege in their motion the
date when they received the Decision dated 30 June 2003. Such date was
material considering that the petitioners' Motion for Reconsideration was filed
only on 14 April 2004, or almost nine months after the promulgation of the
decision sought to be reconsidered. Thus, it ruled that petitioners' Motion for
Reconsideration, filed beyond fifteen days from receipt of the decision to be
reconsidered, rendered the said decision final and executory.

Consequently, petitioners filed an appeal before the Court of Appeals, docketed as

CA-G.R. SP No. 87066. Pending the resolution of this case, the DAR already
issued on 8 July 2005 a Certificate of Land Ownership Award (CLOA) over the
subject property in favor of the respondent's niece and representative, Myrna
Socco-Beltran.18 Respondent passed away on 21 March 2001,19 but the records do
not ascertain the identity of her legal heirs and her legatees.

Acting on CA-G.R. SP No. 87066, the Court of Appeals subsequently promulgated

its Decision, dated 31 January 2006, affirming the Decision dated 30 June 2003 of
the Office of the President. It held that petitioners could not have been actual
occupants of the subject property, since actual occupancy requires the positive
act of occupying and tilling the land, not just the introduction of an unfinished
skeletal structure thereon. The Contract to Sell on which petitioners based their
claim over the subject property was executed by Miguel Socco, who was not the
owner of the said property and, therefore, had no right to transfer the same.
Accordingly, the Court of Appeals affirmed respondent's right over the subject
property, which was derived form the original allocatees thereof.20 The fallo of the
said Decision reads:

WHEREFORE, premises considered, the instant PETITION FOR

REVIEW is DISMISSED. Accordingly, the Decision dated 30 June 2003 and the
Resolution dated 30 December 2004 both issued by the Office of the President
are hereby AFFIRMED in toto.21

The Court of Appeals denied petitioners' Motion for Reconsideration of its Decision
in a Resolution dated 16 August 2006.22

Hence, the present Petition, wherein petitioners raise the following issues:

WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING

THE FINDINGS OF THE OFFICE OF THE PRESIDENT THAT THE SUBJECT LOT IS
VACANT AND THAT PETITIONERS ARE NOT ACTUAL OCCUPANTS THEREOF BY
DENYING THE LATTER'S CLAIM THAT THEY HAVE BEEN IN OPEN, CONTINUOUS,
EXCLUSIVE, NOTORIOUS AND AVDERSE POSSESSION THEREOF SINCE 1954 OR
FOR MORE THAN THIRTY (30) YEARS.

II

WHETHER OR NOT THE COURT OF APPEALS ERRED WHEN IT HELD THAT

PETITIONERS "CANNOT LEGALLY ACQUIRE THE SUBJECT PROPERTY AS THEY ARE
NOT CONSIDERED LANDLESS AS EVIDENCED BY A TAX DECLARATION."

III

WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING THAT "

WHATEVER RESERVATION WE HAVE OVER THE RIGHT OF MYRNA SOCCO TO
SUCCEED WAS ALREADY SETTLED WHEN NO LESS THAN MIGUEL SOCCO
(PREDECESSOR-IN INTEREST OF HEREIN PETITIONERS) EXECUTED HIS WAIVER
OF RIGHT DATED APRIL 19, 2005 OVER THE SUBJECT PROPERTY IN FAVOR OF
MYRNA SOCCO.

IV

WHETHER OR NOT THE COURT OF APPEALS ERRED WHEN IT DENIED

PETITIONERS MOTION FOR NEW TRIAL THEREBY BRUSHING ASIDE THE FACT
THAT MYRNA V. SOCCO-ARIZO GROSSLY MISREPRESENTED IN HER
INFORMATION SHEET OF BENEFICIARIES AND APPLICATION TO PURCHASE LOT
IN LANDED ESTATES THAT SHE IS A FILIPINO CITIZEN, WHEN IN TRUTH AND IN
FACT, SHE IS ALREADY AN AMERICAN NATIONAL.23

The main issue in this case is whether or not petitioners have a better right to the
subject property over the respondent. Petitioner's claim over the subject property
is anchored on the Contract to Sell executed between Miguel Socco and Arturo
Reyes on 5 September 1954. Petitioners additionally allege that they and their
predecessor-in-interest, Arturo Reyes, have been in possession of the subject lot
since 1954 for an uninterrupted period of more than 40 years.

The Court is unconvinced.

Petitioners cannot derive title to the subject property by virtue of the Contract to
Sell. It was unmistakably stated in the Contract and made clear to both parties
thereto that the vendor, Miguel R. Socco, was not yet the owner of the subject
property and was merely expecting to inherit the same as his share as a co-heir
of Constancia's estate.24 It was also declared in the Contract itself that Miguel R.
Socco's conveyance of the subject to the buyer, Arturo Reyes, was a conditional
sale. It is, therefore, apparent that the sale of the subject property in favor of
Arturo Reyes was conditioned upon the event that Miguel Socco would actually
inherit and become the owner of the said property. Absent such occurrence,
Miguel R. Socco never acquired ownership of the subject property which he could
validly transfer to Arturo Reyes.

Under Article 1459 of the Civil Code on contracts of sale, "The thing must be licit
and the vendor must have a right to transfer ownership thereof at the time it is
delivered." The law specifically requires that the vendor must have ownership of
the property at the time it is delivered. Petitioners claim that the property was
constructively delivered to them in 1954 by virtue of the Contract to Sell.
However, as already pointed out by this Court, it was explicit in the Contract itself
that, at the time it was executed, Miguel R. Socco was not yet the owner of the
property and was only expecting to inherit it. Hence, there was no valid sale from
which ownership of the subject property could have transferred from Miguel
Socco to Arturo Reyes. Without acquiring ownership of the subject property,
Arturo Reyes also could not have conveyed the same to his heirs, herein
petitioners.

Petitioners, nevertheless, insist that they physically occupied the subject lot for
more than 30 years and, thus, they gained ownership of the property through
acquisitive prescription, citing Sandoval v. Insular Government 25 and San Miguel
Corporation v. Court of Appeals.26

In Sandoval, petitioners therein sought the enforcement of Section 54, paragraph

6 of Act No. 926, otherwise known as the Land Registration Act, which required -
- for the issuance of a certificate of title to agricultural public lands - - the open,
continuous, exclusive, and notorious possession and occupation of the same in
good faith and under claim of ownership for more than ten years. After evaluating
the evidence presented, consisting of the testimonies of several witnesses and
proof that fences were constructed around the property, the Court in the afore-
stated case denied the petition on the ground that petitioners failed to prove that
they exercised acts of ownership or were in open, continuous, and peaceful
possession of the whole land, and had caused it to be enclosed to the exclusion of
other persons. It further decreed that whoever claims such possession shall
exercise acts of dominion and ownership which cannot be mistaken for the
momentary and accidental enjoyment of the property.27

In San Miguel Corporation, the Court reiterated the rule that the open, exclusive,
and undisputed possession of alienable public land for the period prescribed by
law creates the legal fiction whereby land ceases to be public land and is,
therefore, private property. It stressed, however, that the occupation of the land
for 30 years must be conclusively established. Thus, the evidence offered by
petitioner therein - tax declarations, receipts, and the sole testimony of the
applicant for registration, petitioner's predecessor-in-interest who claimed to have
occupied the land before selling it to the petitioner - were considered insufficient
to satisfy the quantum of proof required to establish the claim of possession
required for acquiring alienable public land.28
As in the two aforecited cases, petitioners herein were unable to prove actual
possession of the subject property for the period required by law. It was
underscored in San Miguel Corporation that the open, continuous, exclusive, and
notorious occupation of property for more than 30 years must be no less
than conclusive, such quantum of proof being necessary to avoid the erroneous
validation of actual fictitious claims of possession over the property that is being
claimed.29

In the present case, the evidence presented by the petitioners falls short of being
conclusive. Apart from their self-serving statement that they took possession of
the subject property, the only proof offered to support their claim was a general
statement made in the letter30 dated 4 February 2002 of Barangay Captain Carlos
Gapero, certifying that Arturo Reyes was the occupant of the subject property
"since peace time and at present." The statement is rendered doubtful by the fact
that as early as 1997, when respondent filed her petition for issuance of title
before the DAR, Arturo Reyes had already died and was already represented by
his heirs, petitioners herein.

Moreover, the certification given by Barangay Captain Gapero that Arturo Reyes

occupied the premises for an unspecified period of time, i.e., since peace time
until the present, cannot prevail over Legal Officer Pinlac's more particular
findings in her Report/Recommendation. Legal Officer Pinlac reported that
petitioners admitted that it was only in the 1970s that they built the skeletal
structure found on the subject property. She also referred to the averments made
by Patricia Hipolito in an Affidavit,31 dated 26 February 1999, that the structure
was left unfinished because respondent prevented petitioners from occupying the
subject property. Such findings disprove petitioners' claims that their
predecessor-in-interest, Arturo Reyes, had been in open, exclusive, and
continuous possession of the property since 1954. The adverted findings were the
result of Legal Officer Pinlac's investigation in the course of her official duties, of
matters within her expertise which were later affirmed by the DAR Secretary, the
Office of the President, and the Court of Appeals. The factual findings of such
administrative officer, if supported by evidence, are entitled to great respect.32

In contrast, respondent's claim over the subject property is backed by sufficient

evidence. Her predecessors-in-interest, the spouses Laquian, have been identified
as the original allocatees who have fully paid for the subject property. The subject
property was allocated to respondent in the extrajudicial settlement by the heirs
of Constancia's estate. The document entitled "Extra-judicial Settlement of the
Estate of the Deceased Constancia Socco" was not notarized and, as a private
document, can only bind the parties thereto. However, its authenticity was never
put into question, nor was its legality impugned. Moreover, executed in 1965 by
the heirs of Constancia Socco, or more than 30 years ago, it is an ancient
document which appears to be genuine on its face and therefore its authenticity
must be upheld.33 Respondent has continuously paid for the realty tax due on the
subject property, a fact which, though not conclusive, served to strengthen her
claim over the property.34

From the foregoing, it is only proper that respondent's claim over the subject
property be upheld. This Court must, however, note that the Order of the DAR
Secretary, dated 9 November 2001, which granted the petitioner's right to
purchase the property, is flawed and may be assailed in the proper proceedings.
Records show that the DAR affirmed that respondent's predecessors-in-interest,
Marcelo Laquian and Constancia Socco, having been identified as the original
allocatee, have fully paid for the subject property as provided under an
agreement to sell. By the nature of a contract or agreement to sell, the title over
the subject property is transferred to the vendee upon the full payment of the
stipulated consideration. Upon the full payment of the purchase price, and absent
any showing that the allocatee violated the conditions of the agreement,
ownership of the subject land should be conferred upon the allocatee.35 Since the
extrajudicial partition transferring Constancia Socco's interest in the subject land
to the respondent is valid, there is clearly no need for the respondent to purchase
the subject property, despite the application for the purchase of the property
erroneously filed by respondent. The only act which remains to be performed is
the issuance of a title in the name of her legal heirs, now that she is deceased.

Moreover, the Court notes that the records have not clearly established the right
of respondent's representative, Myrna Socco-Arizo, over the subject property.
Thus, it is not clear to this Court why the DAR issued on 8 July 2005 a
CLOA36 over the subject property in favor of Myrna Socco-Arizo. Respondent's
death does not automatically transmit her rights to the property to Myrna Socco-
Beltran. Respondent only authorized Myrna Socco-Arizo, through a Special Power
of Attorney37 dated 10 March 1999, to represent her in the present case and to
administer the subject property for her benefit. There is nothing in the Special
Power of Attorney to the effect that Myrna Socco-Arizo can take over the subject
property as owner thereof upon respondent's death. That Miguel V. Socco,
respondent's only nephew, the son of the late Miguel R. Socco, and Myrna Socco-
Arizo's brother, executed a waiver of his right to inherit from respondent, does
not automatically mean that the subject property will go to Myrna Socco-Arizo,
absent any proof that there is no other qualified heir to respondent's estate.
Thus, this Decision does not in any way confirm the issuance of the CLOA in favor
of Myrna Socco-Arizo, which may be assailed in appropriate proceedings.

IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The assailed

Decision of the Court of Appeals in CA-G.R. SP No. 87066, promulgated on 31
January 2006, is AFFIRMED with MODIFICATION. This Court withholds the
confirmation of the validity of title over the subject property in the name of Myrna
Socco-Arizo pending determination of respondent's legal heirs in appropriate
proceedings. No costs.

SO ORDERED.
G.R. No. 167195               May 8, 2009

ASSET PRIVATIZATION TRUST, Petitioner,

vs.
T.J. ENTERPRISES, Respondent.

DECISION

TINGA, J.:

This is a Rule 45 petition1 which seeks the reversal of the Court of Appeals’

decision2 and resolution3 affirming the RTC’s decision4 holding petitioner liable for
actual damages for breach of contract.

Petitioner Asset Privatization Trust5 (petitioner) was a government entity created

for the purpose to conserve, to provisionally manage and to dispose assets of
government institutions.6 Petitioner had acquired from the Development Bank of
the Philippines (DBP) assets consisting of machinery and refrigeration equipment
which were then stored at Golden City compound, Pasay City. The compound was
then leased to and in the physical possession of Creative Lines, Inc., (Creative
Lines). These assets were being sold on an as-is-where-is basis.

On 7 November 1990, petitioner and respondent entered into an absolute deed of

sale over certain machinery and refrigeration equipment identified as Lots Nos. 2,
3 and 5. Respondent paid the full amount of ₱84,000.00 as evidenced by
petitioner’s Receipt No. 12844. After two (2) days, respondent demanded the
delivery of the machinery it had purchased. Sometime in March 1991, petitioner
issued Gate Pass No. 4955. Respondent was able to pull out from the compound
the properties designated as Lots Nos. 3 and 5. However, during the hauling of
Lot No. 2 consisting of sixteen (16) items, only nine (9) items were pulled out by
respondent. The seven (7) items that were left behind consisted of the following:
(1) one (1) Reefer Unit 1; (2) one (1) Reefer Unit 2; (3) one (1) Reefer Unit 3;
(4) one (1) unit blast freezer with all accessories; (5) one (1) unit chest freezer;
(6) one (1) unit room air-conditioner; and (7) one (1) unit air compressor.
Creative Lines’ employees prevented respondent from hauling the remaining
machinery and equipment.

Respondent filed a complaint for specific performance and damages against

petitioner and Creative Lines.7 During the pendency of the case, respondent was
able to pull out the remaining machinery and equipment. However, upon
inspection it was discovered that the machinery and equipment were damaged
and had missing parts.

Petitioner argued that upon the execution of the deed of sale it had complied with
its obligation to deliver the object of the sale since there was no stipulation to the
contrary. It further argued that being a sale on an as-is-where-is basis, it was the
duty of respondent to take possession of the property. Petitioner claimed that
there was already a constructive delivery of the machinery and equipment.

The RTC ruled that the execution of the deed of absolute sale did not result in
constructive delivery of the machinery and equipment. It found that at the time
of the sale, petitioner did not have control over the machinery and equipment
and, thus, could not have transferred ownership by constructive delivery. The
RTC ruled that petitioner is liable for breach of contract and should pay for the
actual damages suffered by respondent.
On petitioner’s appeal, the Court of Appeals affirmed in toto the decision of the
RTC.

Hence this petition.

Before this Court, petitioner raises issues by attributing the following errors to the
Court of Appeals, to wit:

I.

The Court of Appeals erred in not finding that petitioner had complied with its
obligation to make delivery of the properties subject of the contract of sale.

II.

The Court of Appeals erred in not considering that the sale was on an "as-is-
where-is" basis wherein the properties were sold in the condition and in the place
where they were located.

III.

The Court of Appeals erred in not considering that respondent’s acceptance of

petitioner’s disclaimer of warranty forecloses respondent’s legal basis to enforce
any right arising from the contract.

IV.

The reason for the failure to make actual delivery of the properties was not
attributable to the fault and was beyond the control of petitioner. The claim for
damages against petitioner is therefore bereft of legal basis.8

The first issue hinges on the determination of whether there was a constructive
delivery of the machinery and equipment upon the execution of the deed of
absolute sale between petitioner and respondent.

The ownership of a thing sold shall be transferred to the vendee upon the actual
or constructive delivery thereof.9 The thing sold shall be understood as delivered
when it is placed in the control and possession of the vendee.10

As a general rule, 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. And with regard to movable property, its delivery may also be
made by the delivery of the keys of the place or depository where it is stored or
kept.11 In order for the execution of a public instrument to effect tradition, the
purchaser must be placed in control of the thing sold.12

However, the execution of a public instrument only gives rise to a prima facie
presumption of delivery. Such presumption is destroyed when the delivery is not
effected because of a legal impediment.13 It is necessary that the vendor shall
have control over the thing sold that, at the moment of sale, its material delivery
could have been made.14 Thus, a person who does not have actual possession of
the thing sold cannot transfer constructive possession by the execution and
delivery of a public instrument.15
In this case, there was no constructive delivery of the machinery and equipment
upon the execution of the deed of absolute sale or upon the issuance of the gate
pass since it was not petitioner but Creative Lines which had actual possession of
the property. The presumption of constructive delivery is not applicable as it has
to yield to the reality that the purchaser was not placed in possession and control
of the property.

On the second issue, petitioner posits that the sale being in an as-is-where-is
basis, respondent agreed to take possession of the things sold in the condition
where they are found and from the place

where they are located. The phrase as-is where-is basis pertains solely to the
physical condition of the thing sold, not to its legal situation.16 It is merely
descriptive of the state of the thing sold. Thus, the as-is where-is basis merely
describes the actual state and location of the machinery and equipment sold by
petitioner to respondent. The depiction does not alter petitioner’s responsibility to
deliver the property to respondent.1awphi1.zw+

Anent the third issue, petitioner maintains that the presence of the disclaimer of
warranty in the deed of absolute sale absolves it from all warranties, implied or
otherwise. The position is untenable.

The vendor is bound to transfer the ownership of and deliver, as well as warrant
the thing which is the object of the sale.17 Ownership of the thing sold is acquired
by the vendee from the moment it its delivered to him in any of the ways
specified in articles 1497 to 1501, or in any other manner signifying an
agreement that the possession is transferred from the vendor to the vendee.18 A
perusal of the deed of absolute sale shows that both the vendor and the vendee
represented and warranted to each other that each had all the requisite power
and authority to enter into the deed of absolute sale and that they shall perform
each of their respective obligations under the deed of absolute in accordance with
the terms thereof.19 As previously shown, there was no actual or constructive
delivery of the things sold. Thus, petitioner has not performed its obligation to
transfer ownership and possession of the things sold to respondent.

As to the last issue, petitioner claims that its failure to make actual delivery was
beyond its control. It posits that the refusal of Creative Lines to allow the hauling
of the machinery and equipment was unforeseen and constituted a fortuitous
event.

The matter of fortuitous events is governed by Art. 1174 of the Civil Code which
provides that except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the obligation requires
assumption of risk, no person shall be responsible for those events which could
not be foreseen, or which though foreseen, were inevitable. The elements of a
fortuitous event are: (a) the cause of the unforeseen and unexpected occurrence,
must have been independent of human will; (b) the event that constituted the
caso fortuito must have been impossible to foresee or, if foreseeable, impossible
to avoid; (c) the occurrence must have been such as to render it impossible for
the debtors to fulfill their obligation in a normal manner, and; (d) the obligor
must have been free from any participation in the aggravation of the resulting
injury to the creditor.20

A fortuitous event may either be an act of God, or natural occurrences such as

floods or typhoons, or an act of man such as riots, strikes or wars.21 However,
when the loss is found to be partly the result of a person’s participation–whether
by active intervention, neglect or failure to act—the whole occurrence is
humanized and removed from the rules applicable to a fortuitous event.22

We quote with approval the following findings of the Court of Appeals, to wit:

We find that Creative Lines’ refusal to surrender the property to the vendee does
not constitute force majeure which exculpates APT from the payment of damages.
This event cannot be considered unavoidable or unforeseen. APT knew for a fact
that the properties to be sold were housed in the premises leased by Creative
Lines. It should have made arrangements with Creative Lines beforehand for the
smooth and orderly removal of the equipment. The principle embodied in the act
of God doctrine strictly requires that the act must be one occasioned exclusively
by the violence of nature and all human agencies are to be excluded from
creating or entering into the cause of the mischief. When the effect, the cause of
which is to be considered, is found to be in part the result of the participation of
man, whether it be from active intervention or neglect, or failure to act, the whole
occurrence is thereby humanized, as it were, and removed from the rules
applicable to the acts of God.23

Moreover, Art. 1504 of the Civil Code provides that where actual delivery has
been delayed through the fault of either the buyer or seller the goods are at the
risk of the party in fault. The risk of loss or deterioration of the goods sold does
not pass to the buyer until there is actual or constructive delivery thereof. As
previously discussed, there was no actual or constructive delivery of the
machinery and equipment. Thus, the risk of loss or deterioration of property is
borne by petitioner. Thus, it should be liable for the damages that may arise from
the delay.1avvphi1

Assuming arguendo that Creative Lines’ refusal to allow the hauling of the
machinery and equipment is a fortuitous event, petitioner will still be liable for
damages. This Court agrees with the appellate court’s findings on the matter of
damages, thus:

Article 1170 of the Civil Code states: "Those who in the performance of their
obligations are guilty of fraud, negligence, or delay and those who in any manner
contravene the tenor thereof are liable for damages." In contracts and quasi-
contracts, the damages for which the obligor who acted in good faith is liable shall
be those that are the natural and probable consequences of the breach of the
obligation, and which the parties have foreseen or could have reasonably
foreseen at the time the obligation was constituted.24 The trial court correctly
awarded actual damages as pleaded and proven during trial.25

WHEREFORE, the Court AFFIRMS in toto the Decision of the Court of Appeals
dated 31 August 2004. Cost against petitioner.

SO ORDERED.
G.R. No. L-15155           December 29, 1960

BOARD OF LIQUIDATORS, petitioner-appellant,
vs.
EXEQUIEL FLORO, ET AL., oppositors-appellees.

Godofredo Zandueta for appellant.

Isidero A. Vera for appellee.

REYES, J.B.L., J.:

From the order of the Court of First Instance of Manila, dated August 10, 1955,
denying its petition to exclude certain pieces of steel matting from the assets of
the insolvent M. P. Malabanan, the Board of Liquidators appealed to the Court of
Appeals. The latter certified the case to this Court on the ground that only
questions of law are involved.

The Board of Liquidators (hereinafter referred to as the Board) is an agency of the

Government created under Executive Order No. 372 (November 24, 1950), and,
pursuant to Executive Order No. 377 (December 1, 1950), took over the functions
of the defunct Surplus Property Liquidating Committee.

On June 14, 1952 Melecio Malabanan entered into an agreement with the Board
for the salvage of surplus properties sunk in territorial waters off the provinces of
Mindoro, La Union, and Batangas (Exhibit "A"). By its terms, Malabanan was to
commence operations within 30 days from execution of said contract, which was
to be effective for a period of one (1) year from the start of operations,
extendible for a total period of not more than six (6) months. On June 10, 1953,
Malabanan requested for an extension of one (1) year for the salvage in waters of
Mindoro and Batangas; and the Board extended the contract up to November 30,
1953. On November 18, 1953, Malabanan requested a second extension of one
more year for the waters of Occidental Mindoro, and Board again extended the
contract up to August 31, 1954. Malabanan submitted a recovery report dated
July 26, 1954, wherein it is stated that he had recovered a total of 13,107 pieces
of steel mattings, as follows:

1. December, 1953-April 30,

2,5552
1954
2. May 1, 1954-June 30,
10,552
1954

13,107 (pieces)

Four months previously, Malabanan had entered into an agreement with Exequiel
Floro, dated March 31, 1954 (Exhibit 1, Floro), in which, among other things, it
was agreed that Floro would advance to Malabanan certain sums of money, not to
exceed P25,000.00, repayment, thereof being secured by quantities of steel
mattings which Malabanan would consign to Floro; that said advances were to
paid within a certain period, and upon default at the expiration thereof, Floro was,
authorized to sell whatever steel mattings were in his possession under said
contract, in amount sufficient to satisfy the advances. Pursuant thereto, Floro
claims to have made total advances to the sum of P24,224.50.

It appears that as Malabanan was not able to repay Floro's advances, the latter,
by a document dated August 4, 1954, sold 11,047 pieces of steel mattings to
Eulalio Legaspi for the sum of P24,803.40.

Seventeen days later, on August 21, 1954, Malabanan filed in the Court of First
Instance of Manila a petition for voluntary insolvency, attaching thereto a
Schedule of Accounts, in which the Board was listed as one of the creditors for
P10,874.46, and Exequiel Floro for P24,220.50, the origin of the obligations being
described as "Manila Royalty" and "Salvaging Operations", respectively. Also
attached was an Inventory of Properties, listing certain items of personal property
allegedly aggregating P33,707.00 in value. In this list were included 11,167
pieces of steel mattings with an alleged estimated value of P33,501.00.

Soon after, the Board, claiming to be the owner of the listed steel matting, filed a
petition to exclude them from the inventory; and to make the insolvent account
for a further 1,940 pieces of steel matting, the difference between the number
stated in the insolvent's recovery report of July 26, 1954 and that stated in the
inventory. Exequiel Floro opposed the Board's petition and claimed that the steel
matting listed had become the property of Eulalio Legaspi by virtue of a deed of
sale in his favor, executed by Floro pursuant to the latter's contract with
Malabanan on March 31, 1954. The court below, after reception of evidence as to
the genuineness and due execution of the deed of sale to Legaspi, as well as of
the contract between Malabanan and Floro, denied the Board's petition, declaring
that Malabanan had acquired ownership over the steel mattings under his
contract with the Board; that Exequiel Floro was properly authorized to dispose of
the steel mattings under Floro's contract with Malabanan; and that the sale to
Eulalio Legaspi was valid and not contrary to the Insolvency Law.

In this appeal, the Board contends that Malabanan did not acquire ownership over
the steel mattings due to his failure to comply with the terms of the contract,
allegedly constituting conditions precedent for the transfer of title, namely:
payment of the price; audit and check as to the nature, quantity and value of
properties salvaged; weighing of the salvaged properties to be conducted jointly
by representatives of the Board and of Malabanan; determination of the site for
storage; audit and verification of the recovery reports by government auditors;
and firing of performance bond.

We are of the opinion, and so hold, that the contract (Exhibit "A") between
Malabanan and the Board had effect of vesting Malabanan with title to, or
ownership of the steel mattings in question as soon as they were brought up from
the bottom of the sea. This is shown by pertinent provisions of the contract as
follows:

10. For and in consideration of the assignment by the BOARD OF

LIQUIDATORS to the CONTRACTOR (Malabanan) of all right, title and
interest in and to all surplus properties salvaged  by the CONTRACTOR under
this contract, the CONTRACTOR shall pay to the Government Ninety Pesos
(P90.00) per long ton(2,240 lbs.) of surplus properties recovered.

11. Payment of the agreed price shall be made monthly during the first ten
(10) days of every month on the basis of recovery reports of sunken surplus
 properties salvaged during the preceding month, duly verified and audited
by the authorized representative of the BOARD OF LIQUIDATORS.

That Malabanan was required under the contract to post a bond of P10,000.00 to
guarantee compliance with the terms and conditions of the contract; that the
operation for salvage were entirely at Malabanan's expense and risks; that gold,
silver, copper, coins, currency, jewelry, precious stones, etc. were excepted from
the contract, and were instead required to be turned over to the Board for
disposition; that the expenses for storage, including guard service, were for
Malabanan's account — all these circumstances indicated that ownership of the
goods passed to Malabanan as soon as they were recovered or salvaged (i.e., as
soon as the salvor had gained effective possession of the goods), and not only
after payment of the stipulated price. .

While there can be reservation of title in the seller until full payment of the price
(Article 1478, N.C.C.), or, until fulfillment of a condition (Article 1505, N.C.C.);
and while execution of a public instrument amounts to delivery only when from
the deed the contrary does not appear or cannot clearly be inferred (Article
1498, supra), there is nothing in the said contract which may be deemed a
reservation of title, or from which it may clearly be inferred that delivery was not
intended.

The contention that there was no delivery is incorrect. While there was no
physical tradition, there was one by agreement (traditio longa manu) in
conformity with Article 1499 of the Civil Code.lawphil.net

Art. 1499 — The delivery of movable property may likewise be made by the
mere consent or agreement of the contracting parties, if the thing sold
cannot be transferred to the possession of the vendee at the time of the
sale. . . .

As observed earlier, there is nothing in the terms of the public instrument in

question from which an intent to withhold delivery or transfer of title may be
inferred.

The Board also contends that as no renewal of the bond required was filed for the
extension of the contract, it ceased to have any force and effect; and, as the steel
mattings were recovered during the extended period of the contract, Malabanan
did not acquire any rights thereto. The pertinent portion of the contract provides:

12. Jointly with the execution of this contract, the CONTRACTOR shall file a
bond in the amount of TEN THOUSAND (P10,000.00) PESOS to guarantee
his faithful compliance with the terms and conditions herein; Provided, that
this contract shall not be considered to have been executed notwithstanding
the signing hereof by the parties until said bond shall have been properly
filed.

Malabanan filed a bond dated June 10, 1952, effective for one (1) year, or up to
June 10, 1953. The principal contract, executed on June 14, 1952, was first
extended to November 30, 1953, and finally, to August 31, 1954. As can be seen,
there was no longer any bond from June 11, 1953 to August 31, 1954.

The lapse of the bond did not extinguish the contract between Malabanan and the
Board. The requirement that a bond be posted was already complied with when
Malabanan filed the bond dated June 10, 1952. A bond merely stands as guaranty
for a principal obligation which exist independently of said bond, the latter being
an accessory contract (Valencia vs. RFC & C.A., 103 Phil., 444). Significantly, its
purpose, as per the terms of the contract, was "to guarantee his (Malabanan's)
faithful compliance with the terms and conditions herein" and, for violation of the
contract, the Board may declare "the bond forfeited" (par. 13). Being for its
benefit, the Board could legally waive the bond requirement (Valencia vs. RFC, et
al., supra.), and it did so when, the bond already having expired, it extended the
contract not only once, but twice. In none of the resolutions extending contract
(Annexes "C" & "E", pp. 108-112, Record on Appeal) was there a requirement
that the bond be renewed, in the face of the first indorsement by the Executive
Officer recommending that Malabanan's request for a second extension be
granted "provided the bond be originally posted should continue."

There is no merit to the suggestion that there being a novation, Article 1299 of
the Civil Code should govern. Novation is never presumed, it being required that
the intent to novate be expressed clearly and unequivocally, or that the terms of
the new agreement be incompatible with the old contract (Article 1292, N.C.C.;
Martinez vs. Cavives, 25 Phil. 581; Tiu Siuce vs. Habaña, 45 Phil. 707; Pablo vs.
Sapungan, 71 Phil. 145; Young vs. Villa, 93 Phil., 21; 49 Off. Gaz., [5] 1818.)
Here there was neither express novation nor incompatibility from which it could
be implied. Moreover, a mere extension of the term (period) for payment or
performance is not novation (Inchausti vs. Yulo, 34 Phil. 978; Zapanta vs. De
Rotaeche, 21 Phil. 154; Pablo vs. Sapungan, Supra); and, while the extension
covered only some of the areas originally agreed upon, this change did not alter
the essence of the contract (cf. Ramos vs. Gibbon, 67 Phil., 371; Bank of P.I. vs.
Herridge, 47 Phil., 57).

It is next contended that the sale by Floro to Legaspi on August 4, 1954 (within
30 days prior to petition for insolvency) was void as a fraudulent transfer under
Section 70 of the Insolvency Law. The court below held that the sale to Legaspi
was valid and not violative of Section 70; but there having been no proceedings
to determine whether the sale was fraudulent, we think it was premature for the
court below to decide this point, especially because under section 36, No. 8. of
the Insolvency Act, all proceedings to set aside fraudulent transfers should be
brought and prosecuted by the assignee, who can legally represent all the
creditors of the insolvent (Maceda, et al., vs. Hernandez, et al., 70 Phil., 261). To
allow a single creditor to bring such a proceeding would invite a multiplicity of
suits, since the resolution of his case would not bind the other creditors, who may
refile the same claim independently, with diverse proofs, and possibly give rise to
contradictory rulings by the courts.

The order appealed from is hereby affirmed in so far as it declares the disputed
goods to be the property of the insolvent; but without prejudice to the right of the
assignee in insolvency to take whatever action may be proper to attack the
alleged fraudulent transfer of the steel matting to Eulalio Legaspi, and to make
the proper parties account for the difference between the number of pieces of
steel matting stated in the insolvent's recovery report, Annex "B" (13,107), and
that stated in his inventory (11,167). Costs against appellant.

Paras, C.J., Bengzon, Bautista Angelo, Labrador, Barrera, Gutierrez David,

Paredes and Dizon, JJ., concur.
G.R. No. 124242             January 21, 2005

SAN LORENZO DEVELOPMENT CORPORATION, petitioner,

vs.
COURT OF APPEALS, PABLO S. BABASANTA, SPS. MIGUEL LU and PACITA
ZAVALLA LU, respondents.

DECISION

TINGA, J.:

From a coaptation of the records of this case, it appears that respondents Miguel
Lu and Pacita Zavalla, (hereinafter, the Spouses Lu) owned two (2) parcels of
land situated in Sta. Rosa, Laguna covered by TCT No. T-39022 and TCT No. T-
39023 both measuring 15,808 square meters or a total of 3.1616 hectares.

On 20 August 1986, the Spouses Lu purportedly sold the two parcels of land to
respondent Pablo Babasanta, (hereinafter, Babasanta) for the price of fifteen
pesos (₱15.00) per square meter. Babasanta made a downpayment of fifty
thousand pesos (₱50,000.00) as evidenced by a memorandum receipt issued by
Pacita Lu of the same date. Several other payments totaling two hundred
thousand pesos (₱200,000.00) were made by Babasanta.

Sometime in May 1989, Babasanta wrote a letter to Pacita Lu to demand the

execution of a final deed of sale in his favor so that he could effect full payment
of the purchase price. In the same letter, Babasanta notified the spouses about
having received information that the spouses sold the same property to another
without his knowledge and consent. He demanded that the second sale be
cancelled and that a final deed of sale be issued in his favor.

In response, Pacita Lu wrote a letter to Babasanta wherein she acknowledged

having agreed to sell the property to him at fifteen pesos (₱15.00) per square
meter. She, however, reminded Babasanta that when the balance of the purchase
price became due, he requested for a reduction of the price and when she
refused, Babasanta backed out of the sale. Pacita added that she returned the
sum of fifty thousand pesos (₱50,000.00) to Babasanta through Eugenio Oya.

On 2 June 1989, respondent Babasanta, as plaintiff, filed before the Regional Trial
Court (RTC), Branch 31, of San Pedro, Laguna, a Complaint for Specific
Performance and Damages1 against his co-respondents herein, the Spouses Lu.
Babasanta alleged that the lands covered by TCT No. T- 39022 and T-39023 had
been sold to him by the spouses at fifteen pesos (₱15.00) per square meter.
Despite his repeated demands for the execution of a final deed of sale in his
favor, respondents allegedly refused.

In their Answer,2 the Spouses Lu alleged that Pacita Lu obtained loans from

Babasanta and when the total advances of Pacita reached fifty thousand pesos
(₱50,000.00), the latter and Babasanta, without the knowledge and consent of
Miguel Lu, had verbally agreed to transform the transaction into a contract to sell
the two parcels of land to Babasanta with the fifty thousand pesos (₱50,000.00)
to be considered as the downpayment for the property and the balance to be paid
on or before 31 December 1987. Respondents Lu added that as of November
1987, total payments made by Babasanta amounted to only two hundred
thousand pesos (₱200,000.00) and the latter allegedly failed to pay the balance
of two hundred sixty thousand pesos (₱260,000.00) despite repeated demands.
Babasanta had purportedly asked Pacita for a reduction of the price from fifteen
pesos (₱15.00) to twelve pesos (₱12.00) per square meter and when the Spouses
Lu refused to grant Babasanta’s request, the latter rescinded the contract to sell
and declared that the original loan transaction just be carried out in that the
spouses would be indebted to him in the amount of two hundred thousand pesos
(₱200,000.00). Accordingly, on 6 July 1989, they purchased Interbank Manager’s
Check No. 05020269 in the amount of two hundred thousand pesos
(₱200,000.00) in the name of Babasanta to show that she was able and willing to
pay the balance of her loan obligation.

Babasanta later filed an Amended Complaint dated 17 January 19903 wherein he

prayed for the issuance of a writ of preliminary injunction with temporary
restraining order and the inclusion of the Register of Deeds of Calamba, Laguna
as party defendant. He contended that the issuance of a preliminary injunction
was necessary to restrain the transfer or conveyance by the Spouses Lu of the
subject property to other persons.

The Spouses Lu filed their Opposition4 to the amended complaint contending that

it raised new matters which seriously affect their substantive rights under the
original complaint. However, the trial court in its Order dated 17 January
19905 admitted the amended complaint.

On 19 January 1990, herein petitioner San Lorenzo Development Corporation

(SLDC) filed a Motion for Intervention6 before the trial court. SLDC alleged that it
had legal interest in the subject matter under litigation because on 3 May 1989,
the two parcels of land involved, namely Lot 1764-A and 1764-B, had been sold
to it in a Deed of Absolute Sale with Mortgage.7 It alleged that it was a buyer in
good faith and for value and therefore it had a better right over the property in
litigation.

In his Opposition to SLDC’s motion for intervention,8 respondent Babasanta

demurred and argued that the latter had no legal interest in the case because the
two parcels of land involved herein had already been conveyed to him by the
Spouses Lu and hence, the vendors were without legal capacity to transfer or
dispose of the two parcels of land to the intervenor.

Meanwhile, the trial court in its Order dated 21 March 1990 allowed SLDC to
intervene. SLDC filed its Complaint-in-Intervention on 19 April 1990.9 Respondent
Babasanta’s motion for the issuance of a preliminary injunction was likewise
granted by the trial court in its Order dated 11 January 199110 conditioned upon
his filing of a bond in the amount of fifty thousand pesos (₱50,000.00).

SLDC in its Complaint-in-Intervention alleged that on 11 February 1989, the

Spouses Lu executed in its favor an Option to Buy the lots subject of the
complaint. Accordingly, it paid an option money in the amount of three hundred
sixteen thousand one hundred sixty pesos (₱316,160.00) out of the total
consideration for the purchase of the two lots of one million two hundred sixty-
four thousand six hundred forty pesos (₱1,264,640.00). After the Spouses Lu
received a total amount of six hundred thirty-two thousand three hundred twenty
pesos (₱632,320.00) they executed on 3 May 1989 a Deed of Absolute Sale with
Mortgage in its favor. SLDC added that the certificates of title over the property
were delivered to it by the spouses clean and free from any adverse claims
and/or notice of lis pendens. SLDC further alleged that it only learned of the filing
of the complaint sometime in the early part of January 1990 which prompted it to
file the motion to intervene without delay. Claiming that it was a buyer in good
faith, SLDC argued that it had no obligation to look beyond the titles submitted to
it by the Spouses Lu particularly because Babasanta’s claims were not annotated
on the certificates of title at the time the lands were sold to it.

After a protracted trial, the RTC rendered its Decision on 30 July 1993 upholding
the sale of the property to SLDC. It ordered the Spouses Lu to pay Babasanta the
sum of two hundred thousand pesos (₱200,000.00) with legal interest plus the
further sum of fifty thousand pesos (₱50,000.00) as and for attorney’s fees. On
the complaint-in-intervention, the trial court ordered the Register of Deeds of
Laguna, Calamba Branch to cancel the notice of lis pendens annotated on the
original of the TCT No. T-39022 (T-7218) and No. T-39023 (T-7219).

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

Respondent Babasanta appealed the trial court’s decision to the Court of Appeals
alleging in the main that the trial court erred in concluding that SLDC is a
purchaser in good faith and in upholding the validity of the sale made by the
Spouses Lu in favor of SLDC.

Respondent spouses likewise filed an appeal to the Court of Appeals. They

contended that the trial court erred in failing to consider that the contract to sell
between them and Babasanta had been novated when the latter abandoned the
verbal contract of sale and declared that the original loan transaction just be
carried out. The Spouses Lu argued that since the properties involved were
conjugal, the trial court should have declared the verbal contract to sell between
Pacita Lu and Pablo Babasanta null and void ab initio for lack of knowledge and
consent of Miguel Lu. They further averred that the trial court erred in not
dismissing the complaint filed by Babasanta; in awarding damages in his favor
and in refusing to grant the reliefs prayed for in their answer.

On 4 October 1995, the Court of Appeals rendered its Decision11 which set aside

the judgment of the trial court. It declared that the sale between Babasanta and
the Spouses Lu was valid and subsisting and ordered the spouses to execute the
necessary deed of conveyance in favor of Babasanta, and the latter to pay the
balance of the purchase price in the amount of two hundred sixty thousand pesos
(₱260,000.00). The appellate court ruled that the Absolute Deed of Sale with
Mortgage in favor of SLDC was null and void on the ground that SLDC was a
purchaser in bad faith. The Spouses Lu were further ordered to return all
payments made by SLDC with legal interest and to pay attorney’s fees to
Babasanta.

SLDC and the Spouses Lu filed separate motions for reconsideration with the
appellate court.12 However, in a Manifestation dated 20 December 1995,13 the
Spouses Lu informed the appellate court that they are no longer contesting the
decision dated 4 October 1995.

In its Resolution dated 11 March 1996,14 the appellate court considered as

withdrawn the motion for reconsideration filed by the Spouses Lu in view of their
manifestation of 20 December 1995. The appellate court denied SLDC’s motion
for reconsideration on the ground that no new or substantial arguments were
raised therein which would warrant modification or reversal of the court’s decision
dated 4 October 1995.

Hence, this petition.

SLDC assigns the following errors allegedly committed by the appellate court:

THE COURT OF APPEALS ERRED IN HOLDING THAT SAN LORENZO WAS NOT A
BUYER IN GOOD FAITH BECAUSE WHEN THE SELLER PACITA ZAVALLA LU
OBTAINED FROM IT THE CASH ADVANCE OF ₱200,000.00, SAN LORENZO WAS
PUT ON INQUIRY OF A PRIOR TRANSACTION ON THE PROPERTY.

THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE ESTABLISHED

FACT THAT THE ALLEGED FIRST BUYER, RESPONDENT BABASANTA, WAS NOT IN
POSSESSION OF THE DISPUTED PROPERTY WHEN SAN LORENZO BOUGHT AND
TOOK POSSESSION OF THE PROPERTY AND NO ADVERSE CLAIM, LIEN,
ENCUMBRANCE OR LIS PENDENS WAS ANNOTATED ON THE TITLES.

THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE FACT THAT

RESPONDENT BABASANTA HAS SUBMITTED NO EVIDENCE SHOWING THAT SAN
LORENZO WAS AWARE OF HIS RIGHTS OR INTERESTS IN THE DISPUTED
PROPERTY.

THE COURT OF APPEALS ERRED IN HOLDING THAT NOTWITHSTANDING ITS FULL

CONCURRENCE ON THE FINDINGS OF FACT OF THE TRIAL COURT, IT REVERSED
AND SET ASIDE THE DECISION OF THE TRIAL COURT UPHOLDING THE TITLE OF
SAN LORENZO AS A BUYER AND FIRST POSSESSOR IN GOOD FAITH. 15

SLDC contended that the appellate court erred in concluding that it had prior
notice of Babasanta’s claim over the property merely on the basis of its having
advanced the amount of two hundred thousand pesos (₱200,000.00) to Pacita Lu
upon the latter’s representation that she needed the money to pay her obligation
to Babasanta. It argued that it had no reason to suspect that Pacita was not
telling the truth that the money would be used to pay her indebtedness to
Babasanta. At any rate, SLDC averred that the amount of two hundred thousand
pesos (₱200,000.00) which it advanced to Pacita Lu would be deducted from the
balance of the purchase price still due from it and should not be construed as
notice of the prior sale of the land to Babasanta. It added that at no instance did
Pacita Lu inform it that the lands had been previously sold to Babasanta.

Moreover, SLDC stressed that after the execution of the sale in its favor it
immediately took possession of the property and asserted its rights as new owner
as opposed to Babasanta who has never exercised acts of ownership. Since the
titles bore no adverse claim, encumbrance, or lien at the time it was sold to it,
SLDC argued that it had every reason to rely on the correctness of the certificate
of title and it was not obliged to go beyond the certificate to determine the
condition of the property. Invoking the presumption of good faith, it added that
the burden rests on Babasanta to prove that it was aware of the prior sale to him
but the latter failed to do so. SLDC pointed out that the notice of lis pendens was
annotated only on 2 June 1989 long after the sale of the property to it was
consummated on 3 May 1989.1awphi1.nét
Meanwhile, in an Urgent Ex-Parte Manifestation dated 27 August 1999, the
Spouses Lu informed the Court that due to financial constraints they have no
more interest to pursue their rights in the instant case and submit themselves to
the decision of the Court of Appeals.16

On the other hand, respondent Babasanta argued that SLDC could not have
acquired ownership of the property because it failed to comply with the
requirement of registration of the sale in good faith. He emphasized that at the
time SLDC registered the sale in its favor on 30 June 1990, there was already a
notice of lis pendens annotated on the titles of the property made as early as 2
June 1989. Hence, petitioner’s registration of the sale did not confer upon it any
right. Babasanta further asserted that petitioner’s bad faith in the acquisition of
the property is evident from the fact that it failed to make necessary inquiry
regarding the purpose of the issuance of the two hundred thousand pesos
(₱200,000.00) manager’s check in his favor.

The core issue presented for resolution in the instant petition is who between
SLDC and Babasanta has a better right over the two parcels of land subject of the
instant case in view of the successive transactions executed by the Spouses Lu.

To prove the perfection of the contract of sale in his favor, Babasanta presented a
document signed by Pacita Lu acknowledging receipt of the sum of fifty thousand
pesos (₱50,000.00) as partial payment for 3.6 hectares of farm lot situated at
Barangay Pulong, Sta. Cruz, Sta. Rosa, Laguna.17 While the receipt signed by
Pacita did not mention the price for which the property was being sold, this
deficiency was supplied by Pacita Lu’s letter dated 29 May 198918 wherein she
admitted that she agreed to sell the 3.6 hectares of land to Babasanta for fifteen
pesos (₱15.00) per square meter.

An analysis of the facts obtaining in this case, as well as the evidence presented
by the parties, irresistibly leads to the conclusion that the agreement between
Babasanta and the Spouses Lu is a contract to sell and not a contract of sale.

Contracts, in general, are perfected by mere consent,19 which is manifested by

the meeting of the offer and the acceptance upon the thing which are to
constitute the contract. The offer must be certain and the acceptance
absolute.20 Moreover, contracts shall be obligatory in whatever form they may
have been entered into, provided all the essential requisites for their validity are
present.21

The receipt signed by Pacita Lu merely states that she accepted the sum of fifty
thousand pesos (₱50,000.00) from Babasanta as partial payment of 3.6 hectares
of farm lot situated in Sta. Rosa, Laguna. While there is no stipulation that the
seller reserves the ownership of the property until full payment of the price which
is a distinguishing feature of a contract to sell, the subsequent acts of the parties
convince us that the Spouses Lu never intended to transfer ownership to
Babasanta except upon full payment of the purchase price.

Babasanta’s letter dated 22 May 1989 was quite telling. He stated therein that
despite his repeated requests for the execution of the final deed of sale in his
favor so that he could effect full payment of the price, Pacita Lu allegedly refused
to do so. In effect, Babasanta himself recognized that ownership of the property
would not be transferred to him until such time as he shall have effected full
payment of the price. Moreover, had the sellers intended to transfer title, they
could have easily executed the document of sale in its required form
simultaneously with their acceptance of the partial payment, but they did not.
Doubtlessly, the receipt signed by Pacita Lu should legally be considered as a
perfected contract to sell.

The distinction between a contract to sell and a contract of sale is quite germane.
In a contract of sale, title passes to the vendee upon the delivery of the thing
sold; whereas in a contract to sell, by agreement the ownership is reserved in the
vendor and is not to pass until the full payment of the price.22 In a contract of
sale, the vendor has lost and cannot recover ownership until and unless the
contract is resolved or rescinded; whereas in a contract to sell, title is retained by
the vendor until the full payment of the price, such payment being a positive
suspensive condition and failure of which is not a breach but an event that
prevents the obligation of the vendor to convey title from becoming effective.23

The perfected contract to sell imposed upon Babasanta the obligation to pay the
balance of the purchase price. There being an obligation to pay the price,
Babasanta should have made the proper tender of payment and consignation of
the price in court as required by law. Mere sending of a letter by the vendee
expressing the intention to pay without the accompanying payment is not
considered a valid tender of payment.24 Consignation of the amounts due in court
is essential in order to extinguish Babasanta’s obligation to pay the balance of the
purchase price. Glaringly absent from the records is any indication that Babasanta
even attempted to make the proper consignation of the amounts due, thus, the
obligation on the part of the sellers to convey title never acquired obligatory
force.

On the assumption that the transaction between the parties is a contract of sale
and not a contract to sell, Babasanta’s claim of ownership should nevertheless
fail.

Sale, being a consensual contract, is perfected by mere consent25 and from that

moment, the parties may reciprocally demand performance.26 The essential
elements of a contract of sale, to wit: (1) consent or meeting of the minds, that
is, to transfer ownership in exchange for the price; (2) object certain which is the
subject matter of the contract; (3) cause of the obligation which is established.27

The perfection of a contract of sale should not, however, be confused with its
consummation. In relation to the acquisition and transfer of ownership, it should
be noted that sale is not a mode, but merely a title. A mode is the legal means by
which dominion or ownership is created, transferred or destroyed, but title is only
the legal basis by which to affect dominion or ownership.28 Under Article 712 of
the Civil Code, "ownership and other real rights over property are acquired and
transmitted by law, by donation, by testate and intestate succession, and in
consequence of certain contracts, by tradition." Contracts only constitute titles or
rights to the transfer or acquisition of ownership, while delivery or tradition is the
mode of accomplishing the same.29 Therefore, sale by itself does not transfer or
affect ownership; the most that sale does is to create the obligation to transfer
ownership. It is tradition or delivery, as a consequence of sale, that actually
transfers ownership.

Explicitly, the law provides that the ownership of the thing sold is acquired by the
vendee from the moment it is delivered to him in any of the ways specified in
Article 1497 to 1501.30 The word "delivered" should not be taken restrictively to
mean transfer of actual physical possession of the property. The law recognizes
two principal modes of delivery, to wit: (1) actual delivery; and (2) legal or
constructive delivery.

Actual delivery consists in placing the thing sold in the control and possession of
the vendee.31 Legal or constructive delivery, on the other hand, may be had
through any of the following ways: the execution of a public instrument
evidencing the sale;32 symbolical tradition such as the delivery of the keys of the
place where the movable sold is being kept;33 traditio longa manu or by mere
consent or agreement if the movable sold cannot yet be transferred to the
possession of the buyer at the time of the sale;34 traditio brevi manu if the buyer
already had possession of the object even before the sale;35 and traditio
constitutum possessorium, where the seller remains in possession of the property
in a different capacity.36

Following the above disquisition, respondent Babasanta did not acquire ownership
by the mere execution of the receipt by Pacita Lu acknowledging receipt of partial
payment for the property. For one, the agreement between Babasanta and the
Spouses Lu, though valid, was not embodied in a public instrument. Hence, no
constructive delivery of the lands could have been effected. For another,
Babasanta had not taken possession of the property at any time after the
perfection of the sale in his favor or exercised acts of dominion over it despite his
assertions that he was the rightful owner of the lands. Simply stated, there was
no delivery to Babasanta, whether actual or constructive, which is essential to
transfer ownership of the property. Thus, even on the assumption that the
perfected contract between the parties was a sale, ownership could not have
passed to Babasanta in the absence of delivery, since in a contract of sale
ownership is transferred to the vendee only upon the delivery of the thing sold.37

However, it must be stressed that the juridical relationship between the parties in
a double sale is primarily governed by Article 1544 which lays down the rules of
preference between the two purchasers of the same property. It provides:

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

Should it be immovable property, the ownership shall belong to the person

acquiring it who in good faith first recorded it in the Registry of Property.

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

The principle of primus tempore, potior jure (first in time, stronger in right) gains
greater significance in case of double sale of immovable property. When the thing
sold twice is an immovable, the one who acquires it and first records it in the
Registry of Property, both made in good faith, shall be deemed the
owner.38 Verily, the act of registration must be coupled with good faith— that is,
the registrant must have no knowledge of the defect or lack of title of his vendor
or must not have been aware of facts which should have put him upon such
inquiry and investigation as might be necessary to acquaint him with the defects
in the title of his vendor.39

Admittedly, SLDC registered the sale with the Registry of Deeds after it had
acquired knowledge of Babasanta’s claim. Babasanta, however, strongly argues
that the registration of the sale by SLDC was not sufficient to confer upon the
latter any title to the property since the registration was attended by bad faith.
Specifically, he points out that at the time SLDC registered the sale on 30 June
1990, there was already a notice of lis pendens on the file with the Register of
Deeds, the same having been filed one year before on 2 June 1989.

Did the registration of the sale after the annotation of the notice of lis
pendens obliterate the effects of delivery and possession in good faith which
admittedly had occurred prior to SLDC’s knowledge of the transaction in favor of
Babasanta?

We do not hold so.

It must be stressed that as early as 11 February 1989, the Spouses Lu executed

the Option to Buy in favor of SLDC upon receiving ₱316,160.00 as option money
from SLDC. After SLDC had paid more than one half of the agreed purchase price
of ₱1,264,640.00, the Spouses Lu subsequently executed on 3 May 1989 a Deed
of Absolute Sale in favor or SLDC. At the time both deeds were executed, SLDC
had no knowledge of the prior transaction of the Spouses Lu with Babasanta.
Simply stated, from the time of execution of the first deed up to the moment of
transfer and delivery of possession of the lands to SLDC, it had acted in good
faith and the subsequent annotation of lis pendens has no effect at all on the
consummated sale between SLDC and the Spouses Lu.

A purchaser in good faith is one who buys property of another without  notice that
some other person has a right to, or interest in, such property and pays a full and
fair price for the same at the time of such purchase, or before he has notice  of
the claim or interest of some other person in the property.40 Following the
foregoing definition, we rule that SLDC qualifies as a buyer in good faith since
there is no evidence extant in the records that it had knowledge of the prior
transaction in favor of Babasanta. At the time of the sale of the property to SLDC,
the vendors were still the registered owners of the property and were in fact in
possession of the lands.l^vvphi1.net Time and again, this Court has ruled that a
person dealing with the owner of registered land is not bound to go beyond the
certificate of title as he is charged with notice of burdens on the property which
are noted on the face of the register or on the certificate of title.41 In assailing
knowledge of the transaction between him and the Spouses Lu, Babasanta
apparently relies on the principle of constructive notice incorporated in Section 52
of the Property Registration Decree (P.D. No. 1529) which reads, thus:

Sec. 52. Constructive notice upon registration. – Every conveyance, mortgage,

lease, lien, attachment, order, judgment, instrument or entry affecting registered
land shall, if registered, filed, or entered in the office of the Register of Deeds for
the province or city where the land to which it relates lies, be constructive notice
to all persons from the time of such registering, filing, or entering.

However, the constructive notice operates as such¾by the express wording of

Section 52¾from the time of the registration of the notice of lis pendens which in
this case was effected only on 2 June 1989, at which time the sale in favor of
SLDC had long been consummated insofar as the obligation of the Spouses Lu to
transfer ownership over the property to SLDC is concerned.

More fundamentally, given the superiority of the right of SLDC to the claim of
Babasanta the annotation of the notice of lis pendens cannot help Babasanta’s
position a bit and it is irrelevant to the good or bad faith characterization of SLDC
as a purchaser. A notice of lis pendens, as the Court held in Nataño v.
Esteban,42 serves as a warning to a prospective purchaser or incumbrancer that
the particular property is in litigation; and that he should keep his hands off the
same, unless he intends to gamble on the results of the litigation." Precisely, in
this case SLDC has intervened in the pending litigation to protect its rights.
Obviously, SLDC’s faith in the merit of its cause has been vindicated with the
Court’s present decision which is the ultimate denouement on the controversy.

The Court of Appeals has made capital43 of SLDC’s averment in its Complaint-in-

Intervention44 that at the instance of Pacita Lu it issued a check for ₱200,000.00
payable to Babasanta and the confirmatory testimony of Pacita Lu herself on
cross-examination.45 However, there is nothing in the said pleading and the
testimony which explicitly relates the amount to the transaction between the
Spouses Lu and Babasanta for what they attest to is that the amount was
supposed to pay off the advances made by Babasanta to Pacita Lu. In any event,
the incident took place after the Spouses Lu had already executed the Deed of
Absolute Sale with Mortgage in favor of SLDC and therefore, as previously
explained, it has no effect on the legal position of SLDC.

Assuming ex gratia argumenti that SLDC’s registration of the sale had been

tainted by the prior notice of lis pendens and assuming further for the same
nonce that this is a case of double sale, still Babasanta’s claim could not prevail
over that of SLDC’s. In Abarquez v. Court of Appeals,46 this Court had the
occasion to rule that if a vendee in a double sale registers the sale after he has
acquired knowledge of a previous sale, the registration constitutes a registration
in bad faith and does not confer upon him any right. If the registration is done in
bad faith, it is as if there is no registration at all, and the buyer who has taken
possession first of the property in good faith shall be preferred.

In Abarquez, the first sale to the spouses Israel was notarized and registered only
after the second vendee, Abarquez, registered their deed of sale with the Registry
of Deeds, but the Israels were first in possession. This Court awarded the
property to the Israels because registration of the property by Abarquez lacked
the element of good faith. While the facts in the instant case substantially differ
from that in Abarquez, we would not hesitate to rule in favor of SLDC on the basis
of its prior possession of the property in good faith. Be it noted that delivery of
the property to SLDC was immediately effected after the execution of the deed in
its favor, at which time SLDC had no knowledge at all of the prior transaction by
the Spouses Lu in favor of Babasanta.1a\^/phi1.net

The law speaks not only of one criterion. The first criterion is priority of entry in
the registry of property; there being no priority of such entry, the second is
priority of possession; and, in the absence of the two priorities, the third priority
is of the date of title, with good faith as the common critical element. Since SLDC
acquired possession of the property in good faith in contrast to Babasanta, who
neither registered nor possessed the property at any time, SLDC’s right is
definitely superior to that of Babasanta’s.

At any rate, the above discussion on the rules on double sale would be purely
academic for as earlier stated in this decision, the contract between Babasanta
and the Spouses Lu is not a contract of sale but merely a contract to sell.
In Dichoso v. Roxas,47 we had the occasion to rule that Article 1544 does not
apply to a case where there was a sale to one party of the land itself while the
other contract was a mere promise to sell the land or at most an actual
assignment of the right to repurchase the same land. Accordingly, there was no
double sale of the same land in that case.

WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court

of Appeals appealed from is REVERSED and SET ASIDE and the decision of the
Regional Trial Court, Branch 31, of San Pedro, Laguna is REINSTATED. No costs.

SO ORDERED.
G.R. No. L-20091             July 30, 1965

PERPETUA ABUAN, ET AL., plaintiffs-appellants,

vs.
EUSTAQUIO S. GARCIA, ET AL., defendants-appellees.

Emilio R. Gombio for plaintiffs-appellants.

Ruperto G. Martin and Associates for defendants-appellees.

BENGZON, C.J.:

This is an action for legal redemption under Section 119 of the Public Land
Law 1 which provides that:

Every conveyance of land acquired under the free patient or homestead

provisions, when proper, shall be subject to re-purchase by the applicant,
his widow, or legal heirs, for a period of five years from the date of
conveyance.

Acquired by Laureano Abuan the homestead passed after his death to his legal
heirs, the plaintiffs herein. Consequently, the Original Certificate of Title in his
name was cancelled, and in lieu thereof, Transfer Certificate of Title No. T-5486
was issued in their names.

On August 7, 1953, plaintiffs sold the parcel of land to defendants, the sale being
evidenced by a public instrument entitled "Deed of Absolute Sale"; and by virtue
thereof, Transfer Certificate of Title No. T-5906 was issued to defendants.

Later, plaintiffs filed an action to recover the land, alleging that the deed of
absolute sale had been executed through fraud, without consideration. However,
the case was subsequently settled amicably, when the parties entered into an
"Agreement" dated February 28, 1955, under the terms of which defendants paid
P500.00 on that day as partial payment of the purchase price of the land, and
promised to pay the balance of P1,500.00 on or before April 30, 1955, with a
grace period of thirty days. The parties also stipulated in said Agreement that it
"shall supersede all previous agreements or contracts heretofore entered into and
executed by and between plaintiff and defendants, involving the same parcel of
riceland ... .

Claiming that full payment had been effected only sometime in May, 1955,
plaintiffs instituted the present action on March 4, 1960.

Defendants moved to dismiss, on the ground that plaintiffs' right of action was
already barred, because the five-year redemption period had already expired.

Sustaining the motion, the Nueva Vizcaya court dismissed the complaint.

Plaintiffs appealed to the Court of Appeals, which certified the case to this Court
because only a legal issue remains to be determined.

The sole question is: When did the five-year period (within which plaintiffs may
exercise their right of repurchase) begin to run? Should it be August 7, 1953,
when the Deed of Absolute Sale was executed, or February 28, 1955, when the
compromise "Agreement" was entered into; or should it be in May, 1955, upon
full payment of the purchase price? It is obvious that counted from either of the
first two dates more than five years had elapsed when this action for redemption
was brought (March 1960); whereas the action would be well within the period, if
computed from the date of full payment of the purchase price.

The lower court, in dismissing plaintiffs' complaint, fixed the starting date as
February 28, 1955, when the Agreement (Annex "B") was entered into. It is
plaintiffs' contention, on the other hand, that the prescriptive period should be
counted from the full payment of the purchase price, that is, from May, 1955,
since it was on this date that the contract was consummated.

Plaintiffs' contention is untenable. The law speaks of "five years from date of

conveyance." Conveyance means transfer of ownership; it means the date when
the title to the land is transferred from one person to another. 2 The five-year
period should, therefore, be reckoned with from the date that defendants
acquired ownership of the land. Now, when did defendants legally acquire
ownership over the land?

Art. 1477 of the New Civil Code provides that ownership of the thing sold shall be
transferred to the vendee upon the actual or constructive delivery thereof; and
Art. 1496 points out that ownership of the thing sold is acquired by the vendee
from the moment it is delivered to him in any of the ways specified in articles
1497 to 1501. Under Art. 1498, When the sale is made through a public
instrument — as in this case — 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 be clearly inferred. 3 This manner of delivery
of the thing through the execution of a public document is common to personal as
well as real property. 4

It is clear, therefore, that defendants acquired ownership to the land in question

upon the execution of the deed of sale. The deed of sale was executed on August
7, 1953, which was "superseded" by the Agreement of February 28, 1955, as to
the terms and conditions of payment of the purchase price. The latter agreement
did not operate to revest the ownership of the land in the plaintiffs. 5

It is apparent that five years had elapsed since the execution of the deed of sale
at the time plaintiffs filed this action for redemption. Our view finds support in a
long line of decisions holding, that the five-year period starts from the date of the
execution of the instrument of conveyance. 6

But assuming arguendo that Annex "A" is null and void, as plaintiffs aver, and did
not serve to effectuate delivery of the property, we can consider the date of the
Agreement (Annex "B"), at the latest, as the time within which ownership is
vested in the defendants. True, Annex "B" is a private instrument the execution of
which could not be construed as constructive delivery under Art. 1498 of the New
Civil Code. But Art. 1496 explicitly provides that ownership of the thing sold is
acquired by the vendee from the moment it is delivered to him "in any other
manner signifying an agreement that the possession is transferred from the
vendor to the vendee." The intention to give possession (and ownership) is
manifest in the agreement (Annex "B") entered into by the parties, specially
considering the following circumstances: (1) the payment of part of the purchase
price, there being no stipulation in the agreement that ownership will not vest in
the vendees until full payment of the price; and (2) the fact that the agreement
was entered into in consideration of plaintiffs' desistance, as in fact they did
desist, in prosecuting their reivindicatory action, thereby leaving the property in
the hands of the then and now defendants — as owners thereof, necessarily. This
was delivery brevi manu permissible under Articles 1499 and 1501 of the New
Civil Code.

The circumstance that full payment was made only, as plaintiffs allege, in May,
1955, does not alter the fact that ownership of the land passed to defendants
upon the execution of the agreement with the intention of letting them hold it as
owners. In the absence of an express stipulation to the contrary, the payment of
the price is not a condition precedent to the transfer of ownership, which passes
by delivery of the thing to the buyer. 7

IN VIEW OF THE FOREGOING, the order of the court a quo dismissing the

complaint is hereby affirmed, with costs against plaintiffs-appellants.

Bautista Angelo, Reyes, J.B.L., Paredes, Dizon, Regala, Makalintal, Bengzon, J.P.,
and Zaldivar, JJ., concur.
Concepcion, J., took no part.
Barrera, J., is on leave.
G.R. No. 92989             July 8, 1991

PERFECTO DY, JR. petitioner,

vs.
COURT OF APPEALS, GELAC TRADING INC., and ANTONIO V.
GONZALES, respondents.

Zosa & Quijano Law Offices for petitioner.

Expedito P. Bugarin for respondent GELAC Trading, Inc.

GUTIERREZ, JR., J.:

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

The facts as established by the records are as follows:

The petitioner, Perfecto Dy and Wilfredo Dy are brothers. Sometime in 1979,

Wilfredo Dy purchased a truck and a farm tractor through financing extended by
Libra Finance and Investment Corporation (Libra). Both truck and tractor were
mortgaged to Libra as security for the loan.

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

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

Thus, on September 4, 1979, Wilfredo Dy executed a deed of absolute sale in

favor of the petitioner over the tractor in question.

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

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

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

Meanwhile, Civil Case No. R-16646 entitled "Gelac Trading, Inc. v. Wilfredo Dy", a
collection case to recover the sum of P12,269.80 was pending in another court in
Cebu.
On the strength of an alias writ of execution issued on December 27, 1979, the
provincial sheriff was able to seize and levy on the tractor which was in the
premises of Libra in Carmen, Cebu. The tractor was subsequently sold at public
auction where Gelac Trading was the lone bidder. Later, Gelac sold the tractor to
one of its stockholders, Antonio Gonzales.

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

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

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and

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

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

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

A.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS MISAPPREHENDED

THE FACTS AND ERRED IN NOT AFFIRMING THE TRIAL COURT'S FINDING
THAT OWNERSHIP OF THE FARM TRACTOR HAD ALREADY PASSED TO
HEREIN PETITIONER WHEN SAID TRACTOR WAS LEVIED ON BY THE
SHERIFF PURSUANT TO AN ALIAS WRIT OF EXECUTION ISSUED IN
ANOTHER CASE IN FAVOR OF RESPONDENT GELAC TRADING INC.

B.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS EMBARKED ON

MERE CONJECTURE AND SURMISE IN HOLDING THAT THE SALE OF THE
AFORESAID TRACTOR TO PETITIONER WAS DONE IN FRAUD OF WILFREDO
DY'S CREDITORS, THERE BEING NO EVIDENCE OF SUCH FRAUD AS FOUND
BY THE TRIAL COURT.

C.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS MISAPPREHENDED

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

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

In the case of Servicewide Specialists Inc. v. Intermediate Appellate Court. (174

SCRA 80 [1989]), we stated that:

x x x           x x x          x x x

The rule is settled that the chattel mortgagor continues to be the owner of
the property, and therefore, has the power to alienate the same; however,
he is obliged under pain of penal liability, to secure the written consent of
the mortgagee. (Francisco, Vicente, Jr., Revised Rules of Court in the
Philippines, (1972), Volume IV-B Part 1, p. 525). Thus, the instruments of
mortgage are binding, while they subsist, not only upon the parties
executing them but also upon those who later, by purchase or otherwise,
acquire the properties referred to therein.

The absence of the written consent of the mortgagee to the sale of the
mortgaged property in favor of a third person, therefore, affects not the
validity of the sale but only the penal liability of the mortgagor under the
Revised Penal Code and the binding effect of such sale on the mortgagee
under the Deed of Chattel Mortgage.

x x x           x x x          x x x

The mortgagor who gave the property as security under a chattel mortgage did
not part with the ownership over the same. He had the right to sell it although he
was under the obligation to secure the written consent of the mortgagee or he
lays himself open to criminal prosecution under the provision of Article 319 par. 2
of the Revised Penal Code. And even if no consent was obtained from the
mortgagee, the validity of the sale would still not be affected.

Thus, we see no reason why Wilfredo Dy, as the chattel mortgagor can not sell
the subject tractor. There is no dispute that the consent of Libra Finance was
obtained in the instant case. In a letter dated August 27, 1979, Libra allowed the
petitioner to purchase the tractor and assume the mortgage debt of his brother.
The sale between the brothers was therefore valid and binding as between them
and to the mortgagee, as well.

Article 1496 of the Civil Code states that the ownership of the thing sold is
acquired by the vendee from the moment it is delivered to him in any of the ways
specified in Articles 1497 to 1501 or in any other manner signing an agreement
that the possession is transferred from the vendor to the vendee. We agree with
the petitioner that Articles 1498 and 1499 are applicable in the case at bar.

Article 1498 states:

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

x x x           x x x          x x x

Article 1499 provides:

Article 1499. The delivery of movable property may likewise be made by the
mere consent or agreement of the contracting parties, if the thing sold
cannot be transferred to the possession of the vendee at the time of the
sale, or if the latter already had it in his possession for any other reason.
(1463a)

In the instant case, actual delivery of the subject tractor could not be made.
However, there was constructive delivery already upon the execution of the public
instrument pursuant to Article 1498 and upon the consent or agreement of the
parties when the thing sold cannot be immediately transferred to the possession
of the vendee. (Art. 1499)

The respondent court avers that the vendor must first have control and
possession of the thing before he could transfer ownership by constructive
delivery. Here, it was Libra Finance which was in possession of the subject tractor
due to Wilfredo's failure to pay the amortization as a preliminary step to
foreclosure. As mortgagee, he has the right of foreclosure upon default by the
mortgagor in the performance of the conditions mentioned in the contract of
mortgage. The law implies that the mortgagee is entitled to possess the
mortgaged property because possession is necessary in order to enable him to
have the property sold.

While it is true that Wilfredo Dy was not in actual possession and control of the
subject tractor, his right of ownership was not divested from him upon his
default. Neither could it be said that Libra was the owner of the subject tractor
because the mortgagee can not become the owner of or convert and appropriate
to himself the property mortgaged. (Article 2088, Civil Code) Said property
continues to belong to the mortgagor. The only remedy given to the mortgagee is
to have said property sold at public auction and the proceeds of the sale applied
to the payment of the obligation secured by the mortgagee. (See Martinez v.
PNB, 93 Phil. 765, 767 [1953]) There is no showing that Libra Finance has
already foreclosed the mortgage and that it was the new owner of the subject
tractor. Undeniably, Libra gave its consent to the sale of the subject tractor to the
petitioner. It was aware of the transfer of rights to the petitioner.

Where a third person purchases the mortgaged property, he automatically steps

into the shoes of the original mortgagor. (See Industrial Finance Corp. v. Apostol,
177 SCRA 521 [1989]). His right of ownership shall be subject to the mortgage of
the thing sold to him. In the case at bar, the petitioner was fully aware of the
existing mortgage of the subject tractor to Libra. In fact, when he was obtaining
Libra's consent to the sale, he volunteered to assume the remaining balance of
the mortgage debt of Wilfredo Dy which Libra undeniably agreed to.

The payment of the check was actually intended to extinguish the mortgage
obligation so that the tractor could be released to the petitioner. It was never
intended nor could it be considered as payment of the purchase price because the
relationship between Libra and the petitioner is not one of sale but still a
mortgage. The clearing or encashment of the check which produced the effect of
payment determined the full payment of the money obligation and the release of
the chattel mortgage. It was not determinative of the consummation of the sale.
The transaction between the brothers is distinct and apart from the transaction
between Libra and the petitioner. The contention, therefore, that the
consummation of the sale depended upon the encashment of the check is
untenable.

The sale of the subject tractor was consummated upon the execution of the public
instrument on September 4, 1979. At this time constructive delivery was already
effected. Hence, the subject tractor was no longer owned by Wilfredo Dy when it
was levied upon by the sheriff in December, 1979. Well settled is the rule that
only properties unquestionably owned by the judgment debtor and which are not
exempt by law from execution should be levied upon or sought to be levied upon.
For the power of the court in the execution of its judgment extends only over
properties belonging to the judgment debtor. (Consolidated Bank and Trust Corp.
v. Court of Appeals, G.R. No. 78771, January 23, 1991).

The respondents further claim that at that time the sheriff levied on the tractor
and took legal custody thereof no one ever protested or filed a third party claim.

It is inconsequential whether a third party claim has been filed or not by the
petitioner during the time the sheriff levied on the subject tractor. A person other
than the judgment debtor who claims ownership or right over levied properties is
not precluded, however, from taking other legal remedies to prosecute his claim.
(Consolidated Bank and Trust Corp. v. Court of Appeals, supra) This is precisely
what the petitioner did when he filed the action for replevin with the RTC.

Anent the second and third issues raised, the Court accords great respect and
weight to the findings of fact of the trial court.1âwphi1 There is no sufficient
evidence to show that the sale of the tractor was in fraud of Wilfredo and
creditors. While it is true that Wilfredo and Perfecto are brothers, this fact alone
does not give rise to the presumption that the sale was fraudulent. Relationship is
not a badge of fraud (Goquiolay v. Sycip, 9 SCRA 663 [1963]). Moreover, fraud
can not be presumed; it must be established by clear convincing evidence.

We agree with the trial court's findings that the actuations of GELAC Trading were
indeed violative of the provisions on human relations. As found by the trial court,
GELAC knew very well of the transfer of the property to the petitioners on July
14, 1980 when it received summons based on the complaint for replevin filed
with the RTC by the petitioner. Notwithstanding said summons, it continued to
sell the subject tractor to one of its stockholders on August 2, 1980.

WHEREFORE, the petition is hereby GRANTED. The decision of the Court of

Appeals promulgated on March 23, 1990 is SET ASIDE and the decision of the
Regional Trial Court dated April 8, 1988 is REINSTATED.

SO ORDERED.