ESTELITA VILLAMAR, PETITIONER, VS. BALBINO MANGAOIL, RESPONDENT.

Villamar versus Mangaoil

The Case

This is a petition for review on certiorari brought by Estelita Villamar against Balbino Mangaoil, asking the Supreme Court to set aside the affirmance by the Court of Appeals of a judgment rescinding a contract of sale of real property and ordering the return of the down payment. The action below was one for rescission of contract filed by the buyer against the seller. The case matters because it teaches when the execution of a notarized deed of sale suffices as delivery of the thing sold, and when a stipulation in the agreement imposes on the seller a heavier obligation — the actual delivery of possession and of the certificate of title — whose breach is a substantial breach warranting rescission.

Procedural History

Mangaoil filed a complaint for rescission of contract with damages before Branch 23 of the Regional Trial Court of Roxas, Isabela. On September 9, 2005, the trial court ordered the rescission of the agreement and of the deed of absolute sale, and directed Villamar to return to Mangaoil the sum of 185,000 pesos which he had tendered as initial payment. Villamar appealed to the Court of Appeals. On February 20, 2009, the Court of Appeals rendered its decision dismissing the appeal and affirming the assailed decision in its entirety. Villamar moved for reconsideration, and the Court of Appeals denied the motion in its resolution issued on July 8, 2009. Villamar then filed with the Supreme Court the present petition for review on certiorari under Rule 45 of the Rules of Court.

Facts

Villamar was the registered owner of a parcel of land in San Manuel, Isabela, covered by a transfer certificate of title. On March 30, 1998, she entered into an agreement with Mangaoil for the purchase and sale of that land. The price was fixed at 180,000 pesos per hectare, but only 3.5000 hectares were to be paid for and the rest given free, so that the total purchase price was 630,000 pesos. Of that total, 185,000 pesos had already been received on March 27, 1998, to pay the loan secured by the certificate of title in favor of the Rural Bank of Cauayan, so that the title could be withdrawn and released from the bank, and the rest was to pay the mortgages in favor of Romeo Lacaden and Florante Parangan. The agreement further provided that after the release of the certificate of title, the necessary deed of absolute sale in favor of Mangaoil would be executed and the transfer immediately effected, so that he could apply for a loan from any lending institution using the corresponding certificate of title as collateral, with the proceeds of that loan given to Villamar.

On April 1, 1998, the parties executed a deed of absolute sale whereby Villamar transferred the parcel of land to Mangaoil for and in consideration of 150,000 pesos. In a letter dated September 18, 1998, Mangaoil informed Villamar that he was backing out from the sale, giving as one of his reasons that the area was not yet fully cleared of encumbrances, there being tenants who were not willing to vacate the land without being given back the amount they had mortgaged. He demanded the refund of his 185,000 pesos down payment, and reiterated the demand in another letter dated April 29, 1999, but the demand was unheeded.

On January 28, 2002, Mangaoil filed the complaint for rescission, seeking the return of the 185,000 pesos with interest from March 27, 1998, damages, costs, and 20,000 pesos in attorney's fees. He alleged that although Villamar had long redeemed the land from the bank and withdrawn the certificate of title, she failed and refused, despite repeated demands, to hand over the title to him, and that he could not physically possess and cultivate the land because the mortgagees and present possessors refused to vacate. Villamar answered that she had complied with her obligations, claiming that she had caused the release of the title by the bank and its delivery to a certain Attorney Pedro Antonio, who was commissioned to facilitate the transfer of the title in Mangaoil's name, and that it was Mangaoil who unceremoniously withdrew from their agreement.

Issues

• Whether or not the failure of the seller to deliver the certificate of title over the property to the buyer is a breach of obligation in a contract of sale of real property that would warrant rescission of the contract.
• Whether or not the seller is liable for breach of obligation for the failure of the buyer to immediately take actual possession of the property, notwithstanding the absence of any stipulation in the contract providing for the same.
• Whether or not the execution of a deed of sale of real property is already equivalent to a valid and constructive delivery of the property to the buyer.
• Whether or not the contract of sale should be rescinded on slight or casual breach.
• Whether or not the Court of Appeals erred in affirming the decision of the trial court ordering the rescission of the contract of sale.

Applicable Provisions

Article 1458 of the Civil Code provides:

Article 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefore a price certain in money or its equivalent.

This is the source of the seller's correlative obligation to transfer ownership and deliver the thing sold, in exchange for the buyer's payment of the price.

Article 1191 of the Civil Code provides:

Article 1191. The power of rescind obligations is implied in reciprocal ones in case one of the obligors should not comply with what is incumbent upon him.

This is the remedy invoked by the buyer when the seller fails to comply with what is incumbent upon her.

Article 1498 of the Civil Code provides:

Article 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.

This is the rule on symbolic delivery relied upon by the seller, which the Court reads together with the stipulations of the parties.

Article 1306 of the Civil Code provides:

Article 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy.

This is the basis for holding the parties to the express terms of their agreement, which required the immediate transfer of the title to the buyer.

Ruling

On the first issue, the Court ruled that the failure of the seller to deliver the certificate of title is a substantial breach warranting rescission, because the agreement itself imposed that obligation. While Articles 1458, 1495 and 1498 of the Civil Code and case law do not generally require the seller to deliver physical possession and the certificate of title, the agreement of the parties provides otherwise, and such a stipulation is not contrary to law, morals, good customs, public order or public policy. Item 3 of the agreement expressly states that transfer shall be immediately effected so that the buyer can apply for a loan using the corresponding certificate of title as collateral. The Court held that this is literal enough to mean that there should be physical delivery of the title, for how else could the buyer use it as collateral if it remained in the seller's possession. The Court also found that Villamar failed to prove that she delivered the title to Mangaoil, and that although Attorney Antonio's existence was certain, there was no proof that he received the title or was commissioned to process its transfer.

On the second issue, the Court ruled against the seller. The circumstances here differ from those in the case she cited, where the failure to eject squatters was not a ground for rescission because ejectment was not stipulated and the buyer's counsel had undertaken to eject them. Here, item 2 of the agreement stated that part of the 185,000 pesos initially paid would be used to pay the mortgagors Lacaden and Parangan, and the Court found that the seller failed to deliver possession of the property to the buyer.

On the third issue, the Court held that the execution of the deed of sale was not equivalent to a valid and constructive delivery under the circumstances. The Court quoted Article 1498 and explained that symbolic delivery by the execution of a public instrument is equivalent to actual delivery only when the thing sold is subject to the control of the vendor, and that a person who does not have actual possession of real property cannot transfer constructive possession by the execution and delivery of a public document.

On the fourth issue, the Court held that the breach was not slight or casual but substantial, since it defeated the very purpose for which the buyer paid the down payment and entered into the sale.

On the fifth issue, the Court held that the Court of Appeals did not err in affirming the trial court, and denied the petition for lack of merit.

Doctrine

First, the seller in a contract of sale is obliged to transfer the ownership of and to deliver a determinate thing to the buyer, who in turn pays a price certain, under Article 1458 of the Civil Code. Second, under Article 1498, the execution of a public instrument of sale is equivalent to delivery of the thing sold only if from the deed the contrary does not appear or cannot clearly be inferred; symbolic delivery is equivalent to actual delivery only when the thing sold is subject to the control of the vendor. Third, the parties may, under Article 1306, validly stipulate that the seller shall immediately effect the transfer of the certificate of title to the buyer, and such a stipulation is not contrary to law, morals, good customs, public order or public policy. Fourth, the failure of the seller to comply with that stipulation, and to deliver possession of the property, is a substantial breach that entitles the buyer to rescind the contract under Article 1191 of the Civil Code.

Disposition

The Supreme Court denied the petition for lack of merit, thereby affirming the rescission of the agreement and deed of sale and the order directing Villamar to return the 185,000 pesos down payment to Mangaoil.

Remember This

The one line to memorize: a notarized deed of sale amounts to delivery only when the thing sold is under the seller's control, and the parties may validly stipulate a heavier obligation whose breach is substantial and warrants rescission. Examiners use this case to test the limits of symbolic delivery under Article 1498 and the application of Article 1191 to a seller's failure to deliver the certificate of title and possession.