SAN LORENZO DEVELOPMENT CORP. VS. CA, - (GR NO.124242, JAN.

21, 2005)

Facts:

Respondents Miguel Lu and Pacita Zavalla, owned two (2) parcels of land situated in Sta. Rosa,
Laguna covered by TCT No. T-39022 and TCT No. T-39023.

In 1986, the Spouses Lu purportedly sold the two parcels of land to respondent Pablo
Babasanta, for the price of P15.00 per square meter. Babasanta made a downpayment of P50,000.00.
Several other payments totaling P200,000.00 were made by Babasanta.

Babasanta demanded the execution of a final deed of sale in his favor and notified the spouses
of the 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 acknowledged having agreed to sell the property to him but he requested
for a reduction of the price and when she refused, Babasanta backed out of the sale. And so, she
returned the sum of P50,000.00 through Eugenio Oya.

The Spouses Lu further alleged that Pacita Lu obtained loans from Babasanta and when it
reached P50,000.00, without the knowledge and consent of Miguel Lu, verbally agreed to transform the
transaction into a contract to sell. However, Babasanta failed to pay the balance of (P260,000.00)
despite repeated demands and asked Pacita for a reduction of the price to (P12.00) and when refused,
he rescinded the contract to sell and declared that the original loan transaction just be carried out that
the spouses would be indebted to him in the amount of (P200,000.00). Accordingly, they purchased
Interbank Manager’s Check No. 05020269 in the amount of (P200,000.00) in the name of Babasanta.

Herein petitioner San Lorenzo Development Corporation (SLDC) filed a Motion for Intervention
before the trial court. SLDC alleged that it had legal interest in the subject matter under litigation
because the two parcels of land had been sold to it in a Deed of Absolute Sale with Mortgage. 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.

The RTC rendered its Decision upholding the sale of the property to SLDC. It ordered the
Spouses Lu to pay Babasanta the sum of (P200,000.00) with legal interest plus the further sum of
(P50,000.00) 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).

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. Likewise, respondent spouses likewise filed
an appeal to the Court of Appeals.
 On 4 October 1995, the Court of Appeals 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 (P260,000.00). 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.

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. Hence, this petition.

Issue:

Whether or not SLDC 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.

Ruling:

Yes. SLDC has a better right over the two parcels of land.

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. 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.

Here, 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 by
invoking the presumption of good faith.

Further, 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. Thus, SLDC’s right is definitely superior
to that of Babasanta’s.

Note that between two purchasers, the one who registered the sale in his favor has a preferred
right over the other who has not registered his title even if the latter is in actual possession of the
immovable property.
EQUATORIAL REALTY VS. MAYFAIR THEATER, INC.
370 SCRA 56 (GR NO.133879, NOV. 21, 2001)
The Facts:

The present petition arose out of an earlier case decided by this Court on November 21, 1996,
entitled Equatorial Realty Development, Inc. v. Mayfair Theater, Inc, referred to as the mother case.

Carmelo & Bauermann, Inc. used to own a parcel of land with two 2-storey buildings located at
Claro M. Recto Avenue, Manila, and covered by TCT No. 18529.

In 1967, Carmelo entered into a Contract of Lease with Mayfair Theater Inc. which covered a
portion of the second floor and mezzanine of a two-storey building with which respondent used as a
movie house known as Maxim Theater. Two years later, in 1969, Mayfair entered into a second Contract
of Lease with Carmelo for the lease of another part of the second floor of the two-storey building and
put up another movie house known as Miramar Theater.

Both leases for a period of 20 years and contained a provision granting Mayfair a right of first
refusal to purchase the properties. However, on July 30, 1978, within the 20-year-lease term, the
properties were sold by Carmelo to Equatorial Realty Development, Inc. for the total sum of
P11,300,000, without first being offered to Mayfair.

As a result of the sale of the properties to Equatorial, Mayfair filed a Complaint before the RTC
Manila for (a) the annulment of the Deed of Absolute Sale between Carmelo and Equatorial, (b) specific
performance, and (c) damages. The lower court rendered a decision in favor of Carmelo and Equatorial.
On appeal, the Court of Appeals (CA) completely reversed and set aside the judgment of the lower
court.

The court denied the Petition for Review. The Deed of Absolute Sale was deemed rescinded,
Carmelo & Bauermann was ordered to return to petitioner Equatorial Realty Development the purchase
price. The latter is directed to execute the deeds and documents necessary to return ownership to
Carmelo. Carmelo & Bauermann was then ordered to allow Mayfair Theater,Inc. to buy the lots for
P11,300,000.00.

The Decision of this Court became final and executory . Mayfair filed a Motion for Execution,
which the trial court granted.

However, Carmelo could no longer be located. Mayfair deposited with the clerk of court its
payment to Carmelo in the sum of P11,300,000 less P847,000 as withholding tax. The lower court issued
a Deed of Reconveyance in favor of Carmelo and a Deed of Sale in favor of Mayfair. On the basis of these
documents, the Registry of Deeds of Manila cancelled Equatorial's titles and issued new Certificates of
Title in the name of Mayfair.

Ruling on Equatorial's Petition for Certiorari and Prohibition contesting the manner of execution,
the Court directed that Mayfair may not deduct from the purchase price the amount of (P847,000.00) as
withholding tax. The duty to withhold taxes due, if any, is imposed on the seller, Carmelo and
Bauermann, Inc.

Meanwhile, barely five months after Mayfair had submitted its Motion for Execution before the
RTC Equatorial filed with the RTC, an action for the collection of a sum of money against Mayfair,
claiming payment of rentals or reasonable compensation for the defendant's use of the subject premises
after its lease contracts had expired. (present case)

The trial court dismissed the Complaint and denied the Motion for Reconsideration filed by
Equatorial.

Hence, the present recourse.

Issue:

Whether or not the petitioner have any right to demand backrentals from the subject property.

Ruling:

No. The petitioner does not have any right to demand backrentals from the subject property.

Rent is a civil fruit that belongs to the owner of the property producing it by right of accession.
Consequently and ordinarily, the rentals that fell due from the time of the perfection of the sale to
petitioner until its rescission by final judgment should belong to the owner of the property during that
period.

Further, ownership of the thing sold is a real right which the buyer acquires only upon delivery
of the thing 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." This right is
transferred, not by contract alone, but by tradition or delivery. Non nudis pactis sed traditione dominia
rerum transferantur. Execution of public document as symbolic delivery- presumption is negated by the
failure of the vendee to take actual possession of the land sold.

Here, Equatorial never took actual control and possession of the property sold and was never
put in actual and effective control or possession of the property because of Mayfair's timely objection. In
short, the sale to Equatorial may have been valid from inception, but it was judicially rescinded before it
could be consummated. Petitioner never acquired ownership, not because the sale was void, as
erroneously claimed by the trial court, but because the sale was not consummated by a legally effective
delivery of the property sold.

Under Article 1385 of the Civil Code, "rescission creates the obligation to return the things which
were the object of the contract, together with their fruits, and the price with its interest." Not only the
land and building sold, but also the rental payments paid, if any,had to be returned by the buyer.

Also, bad faith of Equatorial precludes any benefits from rescinded contract of sale. Here, it was
knowingly entered into in violation of the rights of and to the prejudice of Mayfair. Thus, Equatorial is
entitled solely to the return of the purchase price it paid to Carmelo - no more, no less.

Therefore, the ruling bars Equatorial from claiming back rentals from Mayfair.