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Republic of the Philippines

THIRD DIVISION

G.R. No. 170405               February 2, 2010

RAYMUNDO S. DE LEON, Petitioner,

DECISION

CORONA, J.:

On March 10, 1993, petitioner Raymundo S. de Leon sold three parcels of land2 with improvements situated in
Antipolo, Rizal to respondent Benita T. Ong. As these properties were mortgaged to Real Savings and Loan
Association, Incorporated (RSLAI), petitioner and respondent executed a notarized deed of absolute sale with
assumption of mortgage3 stating:

x x x           x x x          x x x

That for and in consideration of the sum of ONE MILLION ONE HUNDRED THOUSAND PESOS (₱1.1
million), Philippine currency, the receipt whereof is hereby acknowledged from [RESPONDENT] to the entire
satisfaction of [PETITIONER], said [PETITIONER] does hereby sell, transfer and convey in a manner
absolute and irrevocable, unto said [RESPONDENT], his heirs and assigns that certain real estate together with
the buildings and other improvements existing thereon, situated in [Barrio] Mayamot, Antipolo, Rizal under the
following terms and conditions:

1. That upon full payment of [respondent] of the amount of FOUR HUNDRED FIFTEEN
THOUSAND FIVE HUNDRED (₱415,000), [petitioner] shall execute and sign a deed of
 assumption of mortgage in favor of [respondent] without any further cost whatsoever;

2. That [respondent] shall assume payment of the outstanding loan of SIX HUNDRED EIGHTY
FOUR THOUSAND FIVE HUNDRED PESOS (₱684,500) with REAL SAVINGS AND LOAN, 4
Cainta, Rizal… (emphasis supplied)

x x x           x x x          x x x

Pursuant to this deed, respondent gave petitioner ₱415,500 as partial payment. Petitioner, on the other hand, handed
the keys to the properties and wrote a letter informing RSLAI of the sale and authorizing it to accept payment from
respondent and release the certificates of title.

Thereafter, respondent undertook repairs and made improvements on the properties.5 Respondent likewise informed
RSLAI of her agreement with petitioner for her to assume petitioner’s outstanding loan. RSLAI required her to
undergo credit investigation.

Subsequently, respondent learned that petitioner again sold the same properties to one Leona Viloria after March
10, 1993 and changed the locks, rendering the keys he gave her useless. Respondent thus proceeded to RSLAI to
inquire about the credit investigation. However, she was informed that petitioner had already paid the amount due
and had taken back the certificates of title.

Respondent persistently contacted petitioner but her efforts proved futile.

On June 18, 1993, respondent filed a complaint for specific performance, declaration of nullity of the second sale
and damages6 against petitioner and Viloria in the Regional Trial Court (RTC) of Antipolo, Rizal, Branch 74. She
claimed that since petitioner had previously sold the properties to her on March 10, 1993, he no longer had the right
to sell the same to Viloria. Thus, petitioner fraudulently deprived her of the properties.

Petitioner, on the other hand, insisted that respondent did not have a cause of action against him and consequently
prayed for the dismissal of the complaint. He claimed that since the transaction was subject to a condition (i.e., that
RSLAI approve the assumption of mortgage), they only entered into a contract to sell. Inasmuch as respondent did
apply for a loan from RSLAI, the condition did not arise. Consequently, the sale was not perfected and he could
freely dispose of the properties. Furthermore, he made a counter-claim for damages as respondent filed the
complaint allegedly with gross and evident bad faith.

Because respondent was a licensed real estate broker, the RTC concluded that she knew that the validity of the sale
was subject to a condition. The perfection of a contract of sale depended on RSLAI’s approval of the assumption of
mortgage. Since RSLAI did not allow respondent to assume petitioner’s obligation, the RTC held that the sale was
never perfected.

In a decision dated August 27, 1999,7 the RTC dismissed the complaint for lack of cause of action and ordered
respondent to pay petitioner ₱100,000 moral damages, ₱20,000 attorney’s fees and the cost of suit.

Aggrieved, respondent appealed to the Court of Appeals (CA),8 asserting that the court a quo erred in dismissing
the complaint.

The CA found that the March 10, 2003 contract executed by the parties did not impose any condition on the sale
and held that the parties entered into a contract of sale. Consequently, because petitioner no longer owned the
properties when he sold them to Viloria, it declared the second sale void. Moreover, it found petitioner liable for
moral and exemplary damages for fraudulently depriving respondent of the properties.

In a decision dated July 22, 2005,9 the CA upheld the sale to respondent and nullified the sale to Viloria. It likewise
ordered respondent to reimburse petitioner ₱715,250 (or the amount he paid to RSLAI). Petitioner, on the other
hand, was ordered to deliver the certificates of titles to respondent and pay her ₱50,000 moral damages and
₱15,000 exemplary damages.

Petitioner moved for reconsideration but it was denied in a resolution dated November 11, 2005.10 Hence, this
petition,11 with the sole issue being whether the parties entered into a contract of sale or a contract to sell.

Petitioner insists that he entered into a contract to sell since the validity of the transaction was subject to a
suspensive condition, that is, the approval by RSLAI of respondent’s assumption of mortgage. Because RSLAI did
not allow respondent to assume his (petitioner’s) obligation, the condition never materialized. Consequently, there
was no sale.

Respondent, on the other hand, asserts that they entered into a contract of sale as petitioner already conveyed full
ownership of the subject properties upon the execution of the deed.

We modify the decision of the CA.

Contract of Sale or Contract to Sell?

The RTC and the CA had conflicting interpretations of the March 10, 1993 deed. The RTC ruled that it was a
contract to sell while the CA held that it was a contract of sale.

In a contract of sale, the seller conveys ownership of the property to the buyer upon the perfection of the contract.
Should the buyer default in the payment of the purchase price, the seller may either sue for the collection thereof or
have the contract judicially resolved and set aside. The non-payment of the price is therefore a negative resolutory
condition.12

On the other hand, a contract to sell is subject to a positive suspensive condition. The buyer does not acquire
ownership of the property until he fully pays the purchase price. For this reason, if the buyer defaults in the
payment thereof, the seller can only sue for damages.13

The deed executed by the parties (as previously quoted) stated that petitioner sold the properties to respondent "in a
manner absolute and irrevocable" for a sum of ₱1.1 million.14 With regard to the manner of payment, it required
respondent to pay ₱415,500 in cash to petitioner upon the execution of the deed, with the balance15 payable directly
to RSLAI (on behalf of petitioner) within a reasonable time.16 Nothing in said instrument implied that petitioner
reserved ownership of the properties until the full payment of the purchase price.17 On the contrary, the terms and
conditions of the deed only affected the manner of payment, not the immediate transfer of ownership (upon the
execution of the notarized contract) from petitioner as seller to respondent as buyer. Otherwise stated, the said
terms and conditions pertained to the performance of the contract, not the perfection thereof nor the transfer of
ownership.

Settled is the rule that the seller is obliged to transfer title over the properties and deliver the same to the buyer.18 In
this regard, Article 1498 of the Civil Code19 provides that, as a rule, the execution of a notarized deed of sale is
equivalent to the delivery of a thing sold.

In this instance, petitioner executed a notarized deed of absolute sale in favor of respondent. Moreover, not only did
petitioner turn over the keys to the properties to respondent, he also authorized RSLAI to receive payment from
respondent and release his certificates of title to her. The totality of petitioner’s acts clearly indicates that he had
unqualifiedly delivered and transferred ownership of the properties to respondent. Clearly, it was a contract of sale
the parties entered into.

Furthermore, even assuming arguendo that the agreement of the parties was subject to the condition that RSLAI
had to approve the assumption of mortgage, the said condition was considered fulfilled as petitioner prevented its
fulfillment by paying his outstanding obligation and taking back the certificates of title without even notifying
respondent. In this connection, Article 1186 of the Civil Code provides:

Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.

Void Sale Or Double Sale?

Petitioner sold the same properties to two buyers, first to respondent and then to Viloria on two separate
occasions.20 However, the second sale was not void for the sole reason that petitioner had previously sold the same
properties to respondent. On this account, the CA erred.

This case involves a double sale as the disputed properties were sold validly on two separate occasions by the same
seller to the two different buyers in good faith.

Article 1544 of the Civil Code provides:

Article 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. (emphasis supplied)

This provision clearly states that the rules on double or multiple sales apply only to purchasers in good faith.
Needless to say, it disqualifies any purchaser in bad faith.
A purchaser in good faith is one who buys the property of another without notice that some other person has a right
to, or an 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 some other person’s claim or interest in the property.21 The law requires, on the part of the buyer,
lack of notice of a defect in the title of the seller and payment in full of the fair price at the time of the sale or prior
to having notice of any defect in the seller’s title.

Was respondent a purchaser in good faith? Yes.

Respondent purchased the properties, knowing they were encumbered only by the mortgage to RSLAI. According
to her agreement with petitioner, respondent had the obligation to assume the balance of petitioner’s outstanding
obligation to RSLAI. Consequently, respondent informed RSLAI of the sale and of her assumption of petitioner’s
obligation. However, because petitioner surreptitiously paid his outstanding obligation and took back her
certificates of title, petitioner himself rendered respondent’s obligation to assume petitioner’s indebtedness to
RSLAI impossible to perform.

Article 1266 of the Civil Code provides:

Article 1266. The debtor in obligations to do shall be released when the prestation become legally or physically
impossible without the fault of the obligor.

Since respondent’s obligation to assume petitioner’s outstanding balance with RSLAI became impossible without
her fault, she was released from the said obligation. Moreover, because petitioner himself willfully prevented the
condition vis-à-vis the payment of the remainder of the purchase price, the said condition is considered fulfilled
pursuant to Article 1186 of the Civil Code. For purposes, therefore, of determining whether respondent was a
purchaser in good faith, she is deemed to have fully complied with the condition of the payment of the remainder of
the purchase price.

Respondent was not aware of any interest in or a claim on the properties other than the mortgage to RSLAI which
she undertook to assume. Moreover, Viloria bought the properties from petitioner after the latter sold them to
respondent. Respondent was therefore a purchaser in good faith. Hence, the rules on double sale are applicable.

Article 1544 of the Civil Code provides that when neither buyer registered the sale of the properties with the
registrar of deeds, the one who took prior possession of the properties shall be the lawful owner thereof.

In this instance, petitioner delivered the properties to respondent when he executed the notarized deed22 and handed
over to respondent the keys to the properties. For this reason, respondent took actual possession and exercised
control thereof by making repairs and improvements thereon. Clearly, the sale was perfected and consummated on
March 10, 1993. Thus, respondent became the lawful owner of the properties.

Nonetheless, while the condition as to the payment of the balance of the purchase price was deemed fulfilled,
respondent’s obligation to pay it subsisted. Otherwise, she would be unjustly enriched at the expense of petitioner.

Therefore, respondent must pay petitioner ₱684,500, the amount stated in the deed. This is because the provisions,
terms and conditions of the contract constitute the law between the parties. Moreover, the deed itself provided that
the assumption of mortgage "was without any further cost whatsoever." Petitioner, on the other hand, must deliver
the certificates of title to respondent. We likewise affirm the award of damages.

WHEREFORE, the July 22, 2005 decision and November 11, 2005 resolution of the Court of Appeals in CA-G.R.
CV No. 59748 are hereby AFFIRMED with MODIFICATION insofar as respondent Benita T. Ong is ordered to
pay petitioner Raymundo de Leon ₱684,500 representing the balance of the purchase price as provided in their
March 10, 1993 agreement.

Costs against petitioner.

SO ORDERED.

RENATO C. CORONA
Associate Justice
Chairperson

WE CONCUR:

ANTONIO T. CARPIO PRESBITERO J. VELASCO, JR.

ANTONIO EDUARDO B. NACHURA DIOSDADO M. PERALTA

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to
the writer of the opinion of the Court’s Division.

RENATO C. CORONA
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I certify that the
conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of
the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice

Footnotes
* Per Special Order No. 818 dated January 18, 2010.
1
The Court of Appeals was impleaded as respondent but was excluded pursuant to Section 4, Rule
45 of the Rules of Court.
2
Covered by TCT Nos. 226469, 226470 and 226471 registered in the name of petitioner.
3
Rollo, pp. 55-56. There is a marked discrepancy between the total amount and the sum of the
payments to be made by respondent (or ₱1,099,500).
4
The records of this case revealed that petitioner’s outstanding obligation to RSLAI amounted to
₱715,000 as of April 1, 1993.
5
Respondent had the properties cleaned and landscaped. She likewise had the house (built thereon)
painted and repaired.
6
Docketed as Civil Case No. 93-2739.
7
Penned by Judge Francisco A. Querubin. Id., pp. 129-151.
8
Docketed as CA-G.R. CV No. 59748.
9
Penned by Associate Justice Eugenio S. Labitoria and concurred in by Associate Justices Eliezer R.
delos Santos and Arturo D. Brion (now a member of this Court) of the Third Division of the Court of
Appeals. Rollo, pp. 30-34.
10
Id., pp. 46-47.
11
Under Rule 45 of the Rules of Court.
12
Dijamco v. Court of Appeals. G.R. No. 113665, 7 October 2004, 440 SCRA 190, 197. See also
J.B.L. Reyes, 5 Outline of Philippine Civil Law, 2-3 (1957).
13
Id.
14
Supra note 3.
15
Supra note 4.
16
Paragraph 2 of the deed did not prescribe a period within which respondent should settle
petitioner’s obligation to RSLAI.
17
See Civil Code, Art. 1370 which provides:

Article 1370. If the terms of a contract are clear and leave no doubt upon the intention of the
 contracting parties, the literal meaning of the stipulations shall control.

If the words appear to be contrary to the evident intention of the parties, the latter shall
prevail over the former.
18
Civil Code, Art. 1495 provides:

Article 1495. The vendor is bound to transfer the ownership of and deliver, as well as
warrant the thing which is the object of the sale.
19
Civil Code, Art. 1498 provides:

Article 1498. When a 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 be clearly inferred.

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. (emphasis supplied)
20
See Delfin v. Lagon, G.R. No. 132262, 15 September 2006, 502 SCRA 24, 31.
21
Centeno v. Spouses Viray, 440 Phil. 881, 885 (2002).
22
See Civil Code, Art. 1498.

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