You are on page 1of 18

G.R. No.

L-16544

March 30, 1921

LEONARDO OSORIO, plaintiff-appellee, vs. TOMASA OSORIO, administratrix of the estate of Petrona Reyes, and THE YNCHAUSTI STEAMSHIP CO.,defendants-appellants. Fernandez and Ansaldo for appellants. Carlos Ledesma for appellee. VILLAMOR, J.: The plaintiff seeks to recover 610 shares of stock of "Ynchausti Steamship Co." and the dividends corresponding to them, which were included in the inventory of the properties of the deceased Da. Maria Petrona Reyes, whose estate is administered by the defendant. The facts of this case are: D. Antonio Osorio had formed with Ynchausti & Co., a joint account association for the exploitation of the shipping business, he being the owner of the one-third of the company's capital. This capital amounted to P500,000, of which P166,666.66, that is, one-third belonged to D. Antonio Osorio. Upon his death, his heirs agreed to authorize the defendant Da. Tomasa Osorio, then administratrix of the estate of the deceased, to present a project of partition, and said administratix inserted in the project with the consent of all the heirs, among the properties which belonged to the widow Da. Petrona Reyes, the sum of P94,000 as her part in the "share of the estate in the shipping business of Ynchausti & Co.," that is, a little over P166,666.66, which was the share in said business of the deceased Osorio during his lifetime. The project of partition was approved on May 10, 1915, with the consent of the heirs, by the Court of First Instance of Cavite, which had cognizance of the testamentary and administration proceedings of the state of the deceased Osorio. On February 28, 1914, the widow of D. Antonio Osorio, Da. Petrona Reyes, now also deceased, executed before the notary D. Florencio Gonzales Diez a document of gift in favor of her son D. Leonardo Osorio, the plaintiff, giving to him one-half of her share in the one-third part which belonged to her husband in the shipping business of Ynchausti & Co., a donation which was duly accepted by the donee D. Leonardo Osorio, who signed said document with the plaintiff. On that date, February 28, 1914, the estate of D. Antonio Osorio was not yet distributed among his heirs, and the donor Da. Petrona Reyes in order to correct the error in said document, wherein it was stated that said half was adjudicated to her as part of her conjugal property, when the partition was yet being effected, executed another document dated July 3, 1915, maintaining said donation in effect in the sense that she ceded and

donated to her son D. Leonardo Osorio, for the same reasons stated in the document of February 28, 1914, al interest or participation in said shipping business of Ynchausti & Co., which was adjudicated to her in the division of the estate of D. Antonio Osorio, which division was approved by the Court of First Instance of Cavite on May 10, 1915. After the death of D. Antonio Osorio and before the distribution of the estate, Ynchausti & Co. purchased the steamerGovernor Forbes and recognized the heirs of D. Antonio Osorio as having an interest to the extent of one-third in the ownership and business of said steamer. It was agreed upon by all the interested parties that the share of Da. Petrona Reyes, widow of Osorio, in the vessel Governor Forbes, at the time of the incorporation of "The Ynchausti Steamship Co." was P61,000, equivalent to 610 shares of stock of said corporation. Said sum was deposited with the Steamship Co. until the final settlement of the question that had arisen between the heirs of Da. Petrona Reyes as to the ownership thereof for, while the plaintiff alleges that, by virtue of the donation made in his favor by Da. Petrona Reyes, he is the owner of said shares and of their value which is P61,000; the defendant on the other hand contends that said shares are not included in the donation in question and belong to the heirs of Da. Petrona Reyes. Such as the facts which gave rise to this litigation. The trial court rendered judgment in the case, declaring that the 610 shares of stock in dispute and their dividends belong to the plaintiff, and ordered the defendant Da. Tomasa Osorio, administratrix of the estate of Da. Petrona Reyes, to exclude them from the inventory and her accounts, and the other defendant "The Ynchausti Steamship Co." to inscribe them in the name of the plaintiff D. Leonardo Osorio, delivering to him the dividends corresponding thereto, and denied the counterclaim for the sum of P45,000, on the ground that said sum represents the dividends corresponding to the P94,000 adjudicated to Da. Petrona Reyes, in the partition of the estate of D. Antonio Osorio, and donated by her to the defendant in the counterclaim. The case having been appealed to this court, counsel for the defendant and appellant, in summing up their arguments in support of the errors assigned in their brief, maintain the two following propositions: 1. The donation made by Da. Petrona Reyes in favor of the plaintiff was of no value and effect; and 2. That, supposing said donation valid, the 610 shares of stock, the value of which is P61,000, cannot be considered as included among them.

The document of donation dated February 28, 1914, attacked by the appellant, is as follows: Know all me by these presents: That I, Petrona Reyes, of age, widow of D. Antonio Osorio and resident of the Province of Cavite, Philippine Islands, being in possession of all my senses, freely and voluntarily state: 1. That my husband, the deceased D. Antonio Osorio, was a shareholder to the extent of one-third in the joint account association "Ynchausti & Co." of this place, which is engaged in the business of buying vessels and in the exploitation of six steam vessels acquired from the Compaia Maritima, the article of association of said joint account association having been executed in the city of Manila on July 3, 1906, before the notary public D. Florencio Gonzales Diez. 2. That upon the death of my husband D. Antonio Osorio and upon the partition of his estate, there was adjudicated to me as conjugal property, one-half of said one-third part in the business referred to, the other half thereof going to our four surviving children, such being the present condition of our interest in said company. 3. That in consideration of the continuous services and attention received by me from my son D. Leonardo Osorio, of age, married and a resident of Cavite also, and because of the affection he has always shown and still shows me, as well as because of the number of children that he has, I make a free and expressed donation to my said son D. Leonardo Osorio of all my interest and participation in said company "Ynchausti and Co." which is neither transferred nor burdened in any manner whatever. 4. I also declare that the present donation does not in any way prejudice the right which may accrue to my other children with respect to inheriting my property and that therefore I can effect this donation, with all liberty, as I reserve for myself what is sufficient for me to live on in the manner which corresponds to my social position and needs. 5. In turn, I, Leonardo Osorio, of age, married and a resident of the Province of Cavite, state my conformity and acceptance of said donation which my dear mother makes to me, for which I am greatly thankful to her.

In witness whereof we sign the present document in triplicate at Manila, Philippine Islands, this twenty-eighth day of February, nineteen hundred and fourteen. (Sgd.) PETRONA REYES. LEONARDO OSORIO. Signed in the presence of: (Sgd.) EUSEBIO ALBA. SALVADOR BARRIOS. Acknowledged before the notary public D. Florencio Gonzales Diez on February 28, 1914. The document rectifying the ratifying the preceding is literally as follows: Know all men by these presents: That I, Petrona Reyes, of age, widow of D. Antonio Osorio and resident of the Province of Cavite, Philippine Islands, being in the full possession of my senses, freely and voluntarily declare: 1. That on February 28, 1914, before the notary public of Manila, D. Florencio Gonzales Diez, I executed a document of donation in favor of my son D. Leonardo Osorio, of one-half of the one-third part which my deceased husband had in certain shipping business of the association "Ynchausti & Co." 2. That in said document I stated, through error, that said half of onethird part of the business referred to was adjudicated to me as my part of the conjugal property in the partition of the properties left by my deceased husband, when the truth was that said partition had not yet been put in proper form or finished. 3. That in order to correct said error, I so state, declaring however in any event that I make said donation subsisting in the sense that I cede and donate to my side son D. Leonardo Osorio, in consideration of the same causes mentioned in said document of February 28, 1914, all interest or share in said shipping business of Ynchausti & Co. which was adjudicated to me in the partition of the estate of my deceased husband, and approved by the Court of First Instance of Cavite, on May 10, 1915. In witness whereof I sign the present document in triplicate of Cavite on July 3, 1915.

(Sgd. by): PETRONA REYES. Signed in the presence of: (Sgd.) CARLOS LEDESMA. ISAURO GABALDON. In support of the first proposition, the appellant invokes as the legal provision violated, article 635 of the Civil Code, which says: A donation can not include future property. By future property is understood that of which the donor can not dispose at the time of making the donation. Commenting on article 635 of the Civil Code, Manresa says, among other things: To close these fundamental ideas which the spirit of articles 634 and 635 develops we must fix our attention to the definition which the Code gives of future properties. They are those of which the donor cannot dispose at the time of making the donation. This definition in reality includes all properties which belong to others at the time of the donation, although they may or may not later belong to the donor, thus connecting two ideas which, although lacking apparently in relation, are merged in reality in the subject which we examine and which gives assurance to their application. Article 635 refers to the properties of third persons but it may be said that id does so in relation to a time to come; there can be properties which may latter belong to the donor; but these properties cannot be donated, because they are not at present his properties, because he cannot dispose of them at the moment of making the donation. The usufructuary for life or for a determined number of years of a vineyard may donate said usufruct to the whole extent that it belongs to him but never the property itself. The bare owner of said vineyard may donate his right of course; but he may also donate the usufruct which corresponds to the time that it will go back to him, because the case refers to a vested right of which he may dispose at the time of the donation. It is alleged that the donation made by Da. Petrona Reyes is void because she donated on February 28, 1914, a future property, such as the share in the business of the deceased Osorio, which was adjudicated to her on May

10, 1915, and because in 1914 she did not have the right to all or part of the share which her deceased husband had in the shipping business of Ynchausti & Co. Carefully examining said article 635 of the Civil Code, in relation to the worthy opinion of the commentator Manresa, we believe that the future properties, the donation of which is prohibited by said article, are those belonging to other, which, as such, cannot be the object of the disposal by the donor; but the properties of an existing inheritance as those of the case at bar, cannot be considered as another's property with relation to the heirs who through a fiction of law continue the personality of the owner. Nor do they have the character of future property because the died before 1912, his heirs acquired a right to succeed him from the moment of his death, because of the principle announced in article 657 and applied by article 661 of the Civil Code, according to which the heirs succeed the deceased by the mere fact of his death. More of less time may elapse before the heirs enter into the possession of the hereditary property, but this is not an obstacle, for the acquisition of said property retroacts in any event to the moment of death, according to article 989 of the Civil Code. The right is acquired although subject to the adjudication of the corresponding hereditary portion. Furthermore the Civil Code does not prohibit absolutely that future inheritance should be the object of agreement, for there are certain cases (arts. 177, 827, 831, and 1331) in which agreements may be made as to them, beside that indicated in article 1271, and it may be deduced that an inheritance already existing, which is no longer future from the moment of death of the predecessor, may legally be the object of contract. A donation being of a contractual nature, inasmuch as for its efficacy the concurrence of two wills is required, that of the donor and the donee, we believe that which may be the object of contract may also be the object of a donation. Ubi eadem est ratio, ibi est eadem legis dispositio. We conclude that the donor Da. Petrona Reyes, on February 28, 1912, and could legally dispose of her right through an act of liberality, as she had done. With respect to the point that Da. Petrona Reyes did not have in 1914 any right to all or part of the share of her deceased husband in the shipping business of Ynchausti and Co., it must be observed that in the project of partition of the property of D. Antonio Osorio the following appears: The widow of the testator, Maria Petrona Reyes, her children Feliza, Tomasa, and Leonardo and her granddaugther Soledad Encarnacion Osorio y San Agustin are at present all living and are the only heirs of the deceased.

The testator declares that all property left by him was acquired during his marriage with Petrona Reyes. The testator institutes as his only and universal heirs his said children and granddaugther, designates the parts which each of them must receive as legitime, betterment, and legacy, leaves to the disposition of his widow and amount equivalent to that set aside by him in payment of one-half part of the conjugal property and orders that the remainder should be equally distributed among his heirs. We do not have before us the will of D. Antonio Osorio but supposing that he had left no property but the share which he had in the shipping business of Ynchausti & Co., can it be denied that the donor by law had the right to half of said share as her part of the conjugal property? Clearly not. The defendant in her answer says: That Da. Maria Petrona Reyes did not donate to the plaintiff more that her share in the shipping business of the firm Ynchausti & Co. which was adjudicated to her in the partition of the property of D. Antonio Osorio and that said share amounts to P94,000. This admission of the defendant is conclusive, and makes it unnecessary for us to enter into another discussion in order to deduce that Da. Petrona Reyes had in 1914 a right to a certain part of the interest of the deceased Osorio in the shipping business of the firm Ynchausti & Co., and could donate it, as she did, to her son D. Leonardo Osorio. The allegation that the document of July 3, 1915, is void, because it does not show the acceptance of the donee, is of no importance, because of the conclusion we have reached in discussing the document of donation of February 28, 1914. In the second document, the donor only tried to correct what she believed to be an error in the first, wherein it is stated that in the partition of the property of her husband there was adjudicated to her the part of the interest in the shipping business of Ynchausti & Co. which she donated to her son Leonardo, when in fact said partition was yet pending. After its approval by the Court of First Instance of Cavite, the donor executed the document of 1915, ratifying and correcting the document of donation. She did not make a new donation. She executed a personal act which did not require the concurrence of the donee. It is the duty of the donee, in order that the donation may produce legal effect, to accept to the donation and notify the donor thereof. The acceptance is necessary because nobody is obliged to receive a benefit against his will. And all this was complied with in the document of 1914. The wills of the donor and of the donee having concurred, the donation, as a mode of transferring ownership, becomes perfect, according to article 623 of the Civil Code.

We will not pass to the second proposition of the appellant, that is, that the 610 shares, which are the subject matter of the suit, cannot be considered as included in the donation made by Da. Petrona Reyes in favor of the plaintiff, supposing that said donation was valied. The reasons alleged by the appellant are: (1) That the steam vessel Governor Forbes was purchased after the death of D. Antonio Osorio, with money borrowed and furnished by the heirs individually and not by the estate, and (2) that the plaintiff appellee has recognized that the capital used in the steamer Forbes is distinct from the money used in the purchase of other vessels in which the deceased Osorio had an interest. The question whether the streamer Governor Forbes was or was not purchased with money furnished by Ynchausti and the heirs of Osorio, indepedently of that former partnership in which the deceased Osorio had an interest, is one of the fact and must be resolved in view of the evidence adduced at the trial. D. Julio Gonzales, secretary and accountant of the firm Ynchausti, witness for the defendant, states that the Forbes was purchased with money which the shipping business of Unchaisti & Co. had. The appellant herself admits that his vessel took part in the general shipping business of Ynchausti & Co. for no new partnership was constituted for the purchase thereof, and, after its acquisition the Ynchausti firm accounted to the estate of D. Antonio Osorio for the profits obtained and the dividends to be distributed and no separate account was made of the earnings of the vessel, but only a general account, including the profits obtained in the shipping business, in which the Governor Forbes was but one of several vessels. D. Joaquin Elizalde, manager of the firm Ynchausti & Co., by agreement of the parties and with the approval of the court, made a deposition before the notary public D. Florencio Gonzales Diez, stating that when the steamer Forbes was acquired in 1912, the Ynchausti firm did not bring in any new capital, but obtained money for its purchase by mortgaging the vessel itself and other vesseles of the company; and that the heirs of D. Antonio Osorio did not bring in any new capital for the purchase of the vessel, but signed jointly with Ynchausti & Co. with the others, except Da. Soledad Osorio, the guaranty which the bank required. In our opinion the evidence shows conclusively that the vessel Governor Forbes forms part of the shipping business of Ynchausti & Co. in which D. Antonio Osorio and his estate had an interest. It is no argument against this conclusion that the heirs of Osorio signed with Ynchausti & Co. the guaranty required by the bank where the money used in the purchase of the Forbes was taken: (1) Because the guaranty is for the purpose only for securing the payment of the amount indebted and not for excluding the estate of Osorio from the result of that banking operation; (2) because, besides said guaranty, the other vessels of the joint account association of Osorio and Ynchausti & Co. were mortgage; (3) because no new partnership

was formed between Ynchausti & Co. and the heirs of Osorio for the purchase of the vessel Forbes; and (4) because, when Unchausti & Co. agreed with the heirs of Osorio in that his share in the steamer Forbes was P108,333.33, this sum was distributed among said heirs, including Da. Soledad Osorio who did not sign the guaranty, the accruing to each P11, 833.33 and to the widow Da. Petrona Reyes P61,000, which is the object of this suit. All of the above shows that the estate of Osorio had a one-third part of the steamer Forbes represented by the capital which was distributed among the heirs, there accruing to the widow, by agreement of the interested parties, the sum of P61,000. And this sum being part of the one-half of one-third of the shipping business of Ynchausti & Co., which one-half part accrued to the widow in the distribution of the properties of Osorio; and the widow Da. Petrona Reyes having disposed of this half, donating it to her son D. Leonardo Osorio, it clearly results, in our opinion, that the sum of 61,000, or the corresponding shares of the new corporation "The Ynchausti Steamship Co." are included in said donation, and therefore belong to the plaintiffappellee. The other reason alleged by the appellant in support of her contention is that the plaintiff has recognized in his letter addressed to the defendant corporation, and inserted in the answer presented by the latter that the Forbes was acquired with money different from that of the joint account association theretofore mentioned. We have carefully read the letter in question and what appears is that said plaintiff agreed that the P61,000 should be deposited with Ynchausti & Co., as trustee, to be distributed with its accumulated dividends, when the question between the heirs of Da. Petrona Reyes had already been terminated, that is to say, according to the result of the present suit. There is nothing in said letter which indicates how the Governor Forbes was acquired. With respect to the counterclaim of P45,609,91, we are of the opinion that the evidence justifies the conclusion of the trial court that they are the profits or dividends accruing to the P94,000, which were adjudicated to the widow Da. Petrona Reyes in the distribution of the estate of the deceased Osorio and which were donated by her to the plaintiff, and as such profits they belong to the latter, upon the principle of law that ownership of property gives right by accession to all that it produces, or is united or incorporated thereto, naturally or artificially. (Art. 353 of the Civil Code.) In view of what has been said, the judgment appealed from should be, as it is hereby, affirmed, with costs against the appellant. So ordered. Mapa, C.J., Araullo, Street and Malcolm, JJ., concur.

[G.R. No. 133879. November 21, 2001] EQUATORIAL REALTY DEVELOPMENT, Inc., petitioner, vs. MAYFAIR THEATER, Inc., respondent. DECISION PANGANIBAN, J.: General propositions do not decide specific cases. Rather, laws are interpreted in the context of the peculiar factual situation of each proceeding. Each case has its own flesh and blood and cannot be ruled upon on the basis of isolated clinical classroom principles. While we agree with the general proposition that a contract of sale is valid until rescinded, it is equally true that ownership of the thing sold is not acquired by mere agreement, but by tradition or delivery. The peculiar facts of the present controversy as found by this Court in an earlier relevant Decision show that delivery was not actually effected; in fact, it was prevented by a legally effective impediment. Not having been the owner, petitioner cannot be entitled to the civil fruits of ownership like rentals of the thing sold. Furthermore, petitioners bad faith, as again demonstrated by the specific factual milieu of said Decision, bars the grant of such benefits. Otherwise, bad faith would be rewarded instead of punished. The Case Filed before this Court is a Petition for Review under Rule 45 of the Rules [2] of Court, challenging the March 11, 1998 Order of the Regional Trial Court of Manila (RTC), Branch 8, in Civil Case No. 97-85141. The dispositive portion of the assailed Order reads as follows: WHEREFORE, the motion to dismiss filed by defendant Mayfair is hereby GRANTED, and the complaint filed by plaintiff Equatorial is hereby [3] DISMISSED. Also questioned is the May 29, 1998 RTC Order for Reconsideration. The Facts The main factual antecedents of the present Petition are matters of record, because it arose out of an earlier case decided by this Court on November
[4] [1]

21, 1996, entitled Equatorial Realty Development, Inc. v. Mayfair Theater, [5] Inc. (henceforth referred to as the mother case), docketed as GR No. 106063. Carmelo & Bauermann, Inc. (Carmelo) used to own a parcel of land, together with two 2-storey buildings constructed thereon, located at Claro M. Recto Avenue, Manila, and covered by TCT No. 18529 issued in its name by the Register of Deeds of Manila. On June 1, 1967, Carmelo entered into a Contract of Lease with Mayfair Theater Inc. (Mayfair) for a period of 20 years. The lease covered a portion of the second floor and mezzanine of a two-storey building with about 1,610 square meters of floor area, which respondent used as a movie house known as Maxim Theater. Two years later, on March 31, 1969, Mayfair entered into a second Contract of Lease with Carmelo for the lease of another portion of the latters property -- namely, a part of the second floor of the two-storey building, with a floor area of about 1,064 square meters; and two store spaces on the ground floor and the mezzanine, with a combined floor area of about 300 square meters. In that space, Mayfair put up another movie house known as Miramar Theater. The Contract of Lease was likewise for a period of 20 years. Both leases contained a provision granting Mayfair a right of first refusal to purchase the subject properties. However, on July 30, 1978 - within the 20year-lease term -- the subject properties were sold by Carmelo to Equatorial Realty Development, Inc. (Equatorial) for the total sum of P11,300,000, without their first being offered to Mayfair. As a result of the sale of the subject properties to Equatorial, Mayfair filed a Complaint before the Regional Trial Court of Manila (Branch 7) for (a) the annulment of the Deed of Absolute Sale between Carmelo and Equatorial, (b) specific performance, and (c) damages. After trial on the merits, the lower court rendered a Decision in favor of Carmelo and Equatorial. This case, entitled Mayfair Theater, Inc. v. Carmelo and Bauermann, Inc., et al., was docketed as Civil Case No. 118019. On appeal (docketed as CA-GR CV No. 32918), the Court of Appeals (CA) completely reversed and set aside the judgment of the lower court.

denying petitioners Motion

The controversy reached this Court via GR No. 106063. In this mother case, it denied the Petition for Review in this wise: WHEREFORE, the petition for review of the decision of the Court of Appeals, dated June 23, 1992, in CA-G.R. CV No. 32918, is HEREBY DENIED. The Deed of Absolute Sale between petitioners Equatorial Realty Development, Inc. and Carmelo & Bauermann, Inc. is hereby deemed rescinded; Carmelo & Bauermann is 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 & Bauermann of the disputed lots. Carmelo & Bauermann is ordered to allow [6] Mayfair Theater, Inc. to buy the aforesaid lots for P11,300,000.00. The foregoing Decision of this Court became final and executory on March 17, 1997. On April 25, 1997, Mayfair filed a Motion for Execution, which the trial court granted. However, Carmelo could no longer be located. Thus, following the order of execution of the trial court, Mayfair deposited with the clerk of court a quo its payment to Carmelo in the sum of P11,300,000 lessP847,000 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 Equatorials titles and issued new [7] Certificates of Title in the name of Mayfair. Ruling on Equatorials Petition for Certiorari and Prohibition contesting the foregoing manner of execution, the CA in its Resolution of November 20, 1998, explained that Mayfair had no right to deduct the P847,000 as withholding tax. Since Carmelo could no longer be located, the appellate court ordered Mayfair to deposit the said sum with the Office of the Clerk of Court, Manila, to complete the full amount of P11,300,000 to be turned over to Equatorial. Equatorial questioned the legality of the above CA ruling before this Court in GR No. 136221 entitled Equatorial Realty Development, Inc. v. Mayfair [8] Theater, Inc. In a Decision promulgated on May 12, 2000, this Court directed the trial court to follow strictly the Decision in GR No. 106063, the mother case. It explained its ruling in these words: We agree that Carmelo and Bauermann is obliged to return the entire amount of eleven million three hundred thousand pesos (P11,300,000.00) to Equatorial. On the other hand, Mayfair may not deduct from the purchase

price the amount of eight hundred forty-seven thousand pesos (P847,000.00) as withholding tax. The duty to withhold taxes due, if any, is imposed on the [9] seller, Carmelo and Bauermann, Inc. Meanwhile, on September 18, 1997 -- barely five months after Mayfair had submitted its Motion for Execution before the RTC of Manila, Branch 7 -Equatorial filed with the Regional Trial Court of Manila, Branch 8, an action for the collection of a sum of money against Mayfair, claiming payment of rentals or reasonable compensation for the defendants use of the subject premises after its lease contracts had expired. This action was the progenitor of the present case. In its Complaint, Equatorial alleged among other things that the Lease Contract covering the premises occupied by Maxim Theater expired on May 31, 1987, while the Lease Contract covering the premises occupied by [10] Miramar Theater lapsed on March 31, 1989. Representing itself as the owner of the subject premises by reason of the Contract of Sale on July 30, 1978, it claimed rentals arising from Mayfairs occupation thereof. Ruling of the RTC Manila, Branch 8 As earlier stated, the trial court dismissed the Complaint via the herein assailed Order and denied the Motion for Reconsideration filed by [11] Equatorial. The lower court debunked the claim of petitioner for unpaid back rentals, holding that the rescission of the Deed of Absolute Sale in the mother case did not confer on Equatorial any vested or residual proprietary rights, even in expectancy. In granting the Motion to Dismiss, the court a quo held that the critical issue was whether Equatorial was the owner of the subject property and could thus enjoy the fruits or rentals therefrom. It declared the rescinded Deed of Absolute Sale as void at its inception as though it did not happen. The trial court ratiocinated as follows: The meaning of rescind in the aforequoted decision is to set aside. In the case of Ocampo v. Court of Appeals, G.R. No. 97442, June 30, 1994, the Supreme Court held that, to rescind is to declare a contract void in its inception and to put an end as though it never were. It is not merely to terminate it and release parties from further obligations to each other but to

abrogate it from the beginning and restore parties to relative positions which they would have occupied had no contract ever been made. Relative to the foregoing definition, the Deed of Absolute Sale between Equatorial and Carmelo dated July 31, 1978 is void at its inception as though it did not happen. The argument of Equatorial that this complaint for backrentals as reasonable compensation for use of the subject property after expiration of the lease contracts presumes that the Deed of Absolute Sale dated July 30, 1978 from whence the fountain of Equatorials alleged property rights flows is still valid and existing. xxx xxx xxx

the premises used and occupied by respondent, having been deemed rescinded by the Supreme Court in G.R. No. 106063, is void at its inception as though it did not happen. C. The Regional Trial Court likewise erred in holding that the aforesaid Deed of Absolute Sale, dated July 31, 1978, having been deemed rescinded by the Supreme Court in G.R. No. 106063, petitioner is not the owner and does not have any right to demand backrentals from the subject property, and that the rescission of the Deed of Absolute Sale by the Supreme Court does not confer to petitioner any vested right nor any residual proprietary rights even in expectancy. D. The issue upon which the Regional Trial Court dismissed the civil case, as stated in its Order of March 11, 1998, was not raised by respondent in its Motion to Dismiss. E. The sole ground upon which the Regional Trial Court dismissed Civil Case No. 97-85141 is not one of the grounds of a Motion to Dismiss under Sec. 1 of Rule 16 of the 1997 Rules of Civil Procedure. Basically, the issues can be summarized into two: (1) the substantive issue of whether Equatorial is entitled to back rentals; and (2) the procedural issue of whether the court a quos dismissal of Civil Case No. 97-85141 was based on one of the grounds raised by respondent in its Motion to Dismiss and covered by Rule 16 of the Rules of Court. This Courts Ruling The Petition is not meritorious. First Issue: Ownership of Subject Properties

The subject Deed of Absolute Sale having been rescinded by the Supreme Court, Equatorial is not the owner and does not have any right to demand [12] backrentals from the subject property. x x x. The trial court added: The Supreme Court in the Equatorial case, G.R. No. 106063, has categorically stated that the Deed of Absolute Sale dated July 31, 1978 has been rescinded subjecting the present complaint to res [13] judicata. Hence, the present recourse. Issues Petitioner submits, for the consideration of this Court, the following issues: A. The basis of the dismissal of the Complaint by the Regional Trial Court not only disregards basic concepts and principles in the law on contracts and in civil law, especially those on rescission and its corresponding legal effects, but also ignores the dispositive portion of the Decision of the Supreme Court in G.R. No. 106063 entitled Equatorial Realty Development, Inc. & Carmelo & Bauermann, Inc. vs. Mayfair Theater, Inc. B. The Regional Trial Court erred in holding that the Deed of Absolute Sale in favor of petitioner by Carmelo & Bauermann, Inc., dated July 31, 1978, over
[15] [14]

We hold that under the peculiar facts and circumstances of the case at bar, as found by this Court en banc in its Decision promulgated in 1996 in the

mother case, no right of ownership was transferred from Carmelo to Equatorial in view of a patent failure to deliver the property to the buyer. Rental - a Civil Fruit of Ownership To better understand the peculiarity of the instant case, let us begin with [16] some basic parameters. Rent is a civil fruit that belongs to the owner of [17] [18] 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. By a contract of sale, one of the contracting parties obligates himself to transfer ownership of and to deliver a determinate thing and the other to pay [19] therefor a price certain in money or its equivalent. 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 [21] is transferred from the vendor to the vendee. This right is transferred, not [22] by contract alone, but by tradition or delivery. Non nudis pactis sed traditione dominia rerum transferantur. And there is said to be delivery if and when the thing sold is placed in the control and possession of the [23] vendee. Thus, it has been held that while the execution of a public instrument of sale is recognized by law as equivalent to the delivery of the [24] thing sold, such constructive or symbolic delivery, being merely presumptive, is deemed negated by the failure of the vendee to take actual [25] possession of the land sold. Delivery has been described as a composite act, a thing in which both parties must join and the minds of both parties concur. It is an act by which one party parts with the title to and the possession of the property, and the other acquires the right to and the possession of the same. In its natural sense, delivery means something in addition to the delivery of property or [26] title; it means transfer of possession. In the Law on Sales, delivery may be either actual or constructive, but both forms of delivery contemplate the absolute giving up of the control and custody of the property on the part of [27] the vendor, and the assumption of the same by the vendee. Possession Never Acquired by Petitioner
[20]

Let us now apply the foregoing discussion to the present issue. From the peculiar facts of this case, it is clear that petitioner never took actual control and possession of the property sold, in view of respondents timely objection to the sale and the continued actual possession of the property. The objection took the form of a court action impugning the sale which, as we know, was rescinded by a judgment rendered by this Court in the mother case. It has been held that the execution of a contract of sale as a form of constructive delivery is a legal fiction. It holds true only when there is no impediment that may prevent the passing of the property from the [28] hands of the vendor into those of the vendee. When there is such [29] impediment, fiction yields to reality - the delivery has not been effected. Hence, respondents opposition to the transfer of the property by way of sale to Equatorial was a legally sufficient impediment that effectively prevented the passing of the property into the latters hands. This was the same impediment contemplated in Vda. de Sarmiento v. [30] Lesaca, in which the Court held as follows: The question that now arises is: Is there any stipulation in the sale in question from which we can infer that the vendor did not intend to deliver outright the possession of the lands to the vendee? We find none. On the contrary, it can be clearly seen therein that the vendor intended to place the vendee in actual possession of the lands immediately as can be inferred from the stipulation that the vendee takes actual possession thereof x x x with full rights to dispose, enjoy and make use thereof in such manner and form as would be most advantageous to herself. The possession referred to in the contract evidently refers to actual possession and not merely symbolical inferable from the mere execution of the document. Has the vendor complied with this express commitment? she did not. As provided in Article 1462, the thing sold shall be deemed delivered when the vendee is placed in the control and possession thereof, which situation does not here obtain because from the execution of the sale up to the present the vendee was never able to take possession of the lands due to the insistent refusal of Martin Deloso to surrender them claiming ownership thereof. And although it is postulated in the same article that the execution of a public document is equivalent to delivery, this legal fiction only holds true when there is no impediment that may prevent the passing of the property from the [31] hands of the vendor into those of the vendee. x x x.

The execution of a public instrument gives rise, therefore, only to a prima facie presumption of delivery. Such presumption is destroyed when the instrument itself expresses or implies that delivery was not intended; or when by other means it is shown that such delivery was not effected, because a third person was actually in possession of the thing. In the latter case, the sale cannot be considered consummated. However, the point may be raised that under Article 1164 of the Civil Code, Equatorial as buyer acquired a right to the fruits of the thing sold from the [32] time the obligation to deliver the property to petitioner arose. That time arose upon the perfection of the Contract of Sale on July 30, 1978, from which moment the laws provide that the parties to a sale may reciprocally [33] demand performance. Does this mean that despite the judgment [34] rescinding the sale, the right to the fruits belonged to, and remained enforceable by, Equatorial? Article 1385 of the Civil Code answers this question in the negative, because [r]escission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; x x x . Not only the land and building sold, but also the rental payments paid, if any, had to be returned by the buyer. Another point. The Decision in the mother case stated that Equatorial x x x has received rents from Mayfair during all the years that this controversy has been litigated. The Separate Opinion of Justice Teodoro Padilla in the mother case also said that Equatorial was deriving rental income from the disputed property. Even herein ponentes Separate Concurring Opinion in the mother case recognized these rentals. The question now is: Do all these statements concede actual delivery? The answer is No. The fact that Mayfair paid rentals to Equatorial during the litigation should not be interpreted to mean either actual delivery or ipso facto recognition of Equatorials title. The CA Records of the mother case show that Equatorial - as alleged buyer of the disputed properties and as alleged successor-in-interest of Carmelos rights as lessor - submitted two ejectment suits against Mayfair. Filed in the Metropolitan Trial Court of Manila, the first was docketed as Civil Case No. 121570 on July 9, 1987; and the second, as Civil Case No. 131944 on May 28, 1990. Mayfair eventually won them both. However, to be able to maintain physical possession of the premises while
[35]

awaiting the outcome of the mother case, it had no choice but to pay the rentals. The rental payments made by Mayfair should not be construed as a recognition of Equatorial as the new owner. They were made merely to avoid imminent eviction. It is in this context that one should understand the aforequoted factual statements in the ponencia in the mother case, as well as the Separate Opinion of Mr. Justice Padilla and the Separate Concurring Opinion of the herein ponente. At bottom, it may be conceded that, theoretically, a rescissible contract is valid until rescinded. However, this general principle is not decisive to the issue of whether Equatorial ever acquired the right to collect rentals. What is decisive is the civil law rule that ownership is acquired, not by mere agreement, but by tradition or delivery. Under the factual environment of this controversy as found by this Court in the mother case, Equatorial was never put in actual and effective control or possession of the property because of Mayfairs timely objection. As pointed out by Justice Holmes, general propositions do not decide specific cases. Rather, laws are interpreted in the context of the peculiar factual situation of each case. Each case has its own flesh and blood and [36] cannot be decided on the basis of isolated clinical classroom princi ples. 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. Benefits Precluded by Petitioners Bad Faith Furthermore, assuming for the sake of argument that there was valid delivery, petitioner is not entitled to any benefits from the rescinded Deed of Absolute Sale because of its bad faith. This being the law of the mother case decided in 1996, it may no longer be changed because it has long become final and executory. Petitioners bad faith is set forth in the following pertinent portions of the mother case: First and foremost is that the petitioners acted in bad faith to render Paragraph 8 inutile.

xxx

xxx

xxx

Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question rescissible. We agree with respondent Appellate Court that the records bear out the fact that Equatorial was aware of the lease contracts because its lawyers had, prior to the sale, studied the said contracts. As such, Equatorial cannot tenably claim to be a purchaser in good faith, and, therefore, rescission lies. xxx xxx xxx

We uphold the trial courts disposition, not for the reason it gave, but for (a) the patent failure to deliver the property and (b) petitioners bad faith, as above discussed. Second Issue: Ground in Motion to Dismiss Procedurally, petitioner claims that the trial court deviated from the accepted and usual course of judicial proceedings when it dismissed Civil Case No. 97-85141 on a ground not raised in respondents Motion to Dismiss. Worse, it allegedly based its dismissal on a ground not provided for in a motion to dismiss as enunciated in the Rules of Court. We are not convinced. A review of respondents Motion to Dismiss Civil Case No. 97-85141 shows that there were two grounds invoked, as follows: (A) Plaintiff is guilty of forum-shopping. (B) Plaintiffs cause of action, if any, is barred by prior judgment.
[39]

As also earlier emphasized, the contract of sale between Equatorial and Carmelo is characterized by bad faith, since it was knowingly entered into in violation of the rights of and to the prejudice of Mayfair. In fact, as correctly observed by the Court of Appeals, Equatorial admitted that its lawyers had studied the contract of lease prior to the sale. Equatorials knowledge of the stipulations therein should have cautioned it to look further into the agreement to determine if it involved stipulations that would prejudice its own interests. xxx xxx xxx

On the part of Equatorial, it cannot be a buyer in good faith because it bought the property with notice and full knowledge that Mayfair had a right to or interest in the property superior to its own. Carmelo and Equatorial took [37] unconscientious advantage of Mayfair. (Italics supplied) Thus, petitioner was and still is entitled solely to the return of the purchase price it paid to Carmelo; no more, no less. This Court has firmly ruled in the mother case that neither of them is entitled to any consideration of equity, as [38] both took unconscientious advantage of Mayfair. In the mother case, this Court categorically denied the payment of interest, a fruit of ownership. By the same token, rentals, another fruit of ownership, cannot be granted without mocking this Courts en banc Decision, which has long become final. Petitioners claim of reasonable compensation for respondents use and occupation of the subject property from the time the lease expired cannot be countenanced. If it suffered any loss, petitioner must bear it in silence, since it had wrought that loss upon itself. Otherwise, bad faith would be rewarded instead of punished.

The court a quo ruled, inter alia, that the cause of action of petitioner (plaintiff in the case below) had been barred by a prior judgment of this Court in GR No. 106063, the mother case. Although it erred in its interpretation of the said Decision when it argued that the rescinded Deed of Absolute Sale was void, we hold, nonetheless, that petitioners cause of action is indeed barred by a prior judgment of this Court. As already discussed, our Decision in GR No. 106063 shows that petitioner is not entitled to back rentals, because it never became the owner of the disputed properties due to a failure of delivery. And even assuming arguendo that there was a valid delivery, petitioners bad faith negates its entitlement to the civil fruits of ownership, like interest and rentals. Under the doctrine of res judicata or bar by prior judgment, a matter that has been adjudicated by a court of competent jurisdiction must be deemed to have been finally and conclusively settled if it arises in any subsequent [40] litigation between the same parties and for the same cause. Thus, [a] final

judgment on the merits rendered by a court of competent jurisdiction is conclusive as to the rights of the parties and their privies and constitutes an absolute bar to subsequent actions involving the same claim, demand, or [41] cause of action. Res judicata is based on the ground that the party to be affected, or some other with whom he is in privity, has litigated the same matter in a former action in a court of competent jurisdiction, and should not [42] be permitted to litigate it again. It frees the parties from undergoing all over again the rigors of unnecessary suits and repetitive trials. At the same time, it prevents the clogging of court dockets. Equally important, it stabilizes rights and promotes the rule of law. We find no need to repeat the foregoing disquisitions on the first issue to show satisfaction of the elements of res judicata. Suffice it to say that, clearly, our ruling in the mother case bars petitioner from claiming back rentals from respondent. Although the court a quo erred when it declared void from inception the Deed of Absolute Sale between Carmelo and petitioner, our foregoing discussion supports the grant of the Motion to Dismiss on the ground that our prior judgment in GR No. 106063 has already resolved the issue of back rentals. On the basis of the evidence presented during the hearing of Mayfairs Motion to Dismiss, the trial court found that the issue of ownership of the subject property has been decided by this Court in favor of Mayfair. We quote the RTC: The Supreme Court in the Equatorial case, G.R. No. 106063 has categorically stated that the Deed of Absolute Sale dated July 31, 1978 has been rescinded subjecting the present complaint to res [43] judicata. (Emphasis in the original) Hence, the trial court decided the Motion to Dismiss on the basis of res judicata, even if it erred in interpreting the meaning of rescinded as equivalent to void. In short, it ruled on the ground raised; namely, bar by prior judgment. By granting the Motion, it disposed correctly, even if its legal reason for nullifying the sale was wrong. The correct reasons are given in this Decision. WHEREFORE, the Petition is hereby DENIED. Costs against petitioner. SO ORDERED.

EN BANC

[G.R. No. 133879. November 21, 2001]

EQUATORIAL REALTY DEVELOPMENT, Inc., petitioner, vs. MAYFAIR THEATER, Inc., respondent. DECISION PANGANIBAN, J.: General propositions do not decide specific cases. Rather, laws are interpreted in the context of the peculiar factual situation of each proceeding. Each case has its own flesh and blood and cannot be ruled upon on the basis of isolated clinical classroom principles. While we agree with the general proposition that a contract of sale is valid until rescinded, it is equally true that ownership of the thing sold is not acquired by mere agreement, but by tradition or delivery. The peculiar facts of the present controversy as found by this Court in an earlier relevant Decision show that delivery was not actually effected; in fact, it was prevented by a legally effective impediment. Not having been the owner, petitioner cannot be entitled to the civil fruits of ownership like rentals of the thing sold. Furthermore, petitioners bad faith, as again demonstrated by the specific factual milieu of said Decision, bars the grant of such benefits. Otherwise, bad faith would be rewarded instead of punished.

The Case Filed before this Court is a Petition for Review under Rule 45 of the [2] Rules of Court, challenging the March 11, 1998 Order of the Regional Trial Court of Manila (RTC), Branch 8, in Civil Case No. 97-85141. The dispositive portion of the assailed Order reads as follows: WHEREFORE, the motion to dismiss filed by defendant Mayfair is hereby GRANTED, and the complaint filed by plaintiff Equatorial is hereby [3] DISMISSED. Also questioned is the May 29, 1998 RTC Order Motion for Reconsideration.
[4] [1]

denying petitioners

The Facts The main factual antecedents of the present Petition are matters of record, because it arose out of an earlier case decided by this Court on November 21, 1996, entitled Equatorial Realty Development, Inc. v. Mayfair [5] Theater, Inc. (henceforth referred to as the mother case), docketed as GR No. 106063. Carmelo & Bauermann, Inc. (Carmelo) used to own a parcel of land, together with two 2-storey buildings constructed thereon, located at Claro M. Recto Avenue, Manila, and covered by TCT No. 18529 issued in its name by the Register of Deeds of Manila. On June 1, 1967, Carmelo entered into a Contract of Lease with Mayfair Theater Inc. (Mayfair) for a period of 20 years. The lease covered a portion of the second floor and mezzanine of a two-storey building with about 1,610 square meters of floor area, which respondent used as a movie house known as Maxim Theater. Two years later, on March 31, 1969, Mayfair entered into a second Contract of Lease with Carmelo for the lease of another portion of the latters property -- namely, a part of the second floor of the two-storey building, with a floor area of about 1,064 square meters; and two store spaces on the ground floor and the mezzanine, with a combined floor area of about 300 square meters. In that space, Mayfair put up another movie house known as Miramar Theater. The Contract of Lease was likewise for a period of 20 years. Both leases contained a provision granting Mayfair a right of first refusal to purchase the subject properties. However, on July 30, 1978 - within the 20-year-lease term -- the subject properties were sold by Carmelo to Equatorial Realty Development, Inc. (Equatorial) for the total sum of P11,300,000, without their first being offered to Mayfair. As a result of the sale of the subject properties to Equatorial, Mayfair filed a Complaint before the Regional Trial Court of Manila (Branch 7) for (a) the annulment of the Deed of Absolute Sale between Carmelo and Equatorial, (b) specific performance, and (c) damages. After trial on the merits, the lower court rendered a Decision in favor of Carmelo and Equatorial. This case, entitled Mayfair Theater, Inc. v. Carmelo and Bauermann, Inc., et al., was docketed as Civil Case No. 118019. On appeal (docketed as CA-GR CV No. 32918), the Court of Appeals (CA) completely reversed and set aside the judgment of the lower court. The controversy reached this Court via GR No. 106063. In this mother case, it denied the Petition for Review in this wise:

WHEREFORE, the petition for review of the decision of the Court of Appeals, dated June 23, 1992, in CA-G.R. CV No. 32918, is HEREBY DENIED. The Deed of Absolute Sale between petitioners Equatorial Realty Development, Inc. and Carmelo & Bauermann, Inc. is hereby deemed rescinded; Carmelo & Bauermann is 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 & Bauermann of the disputed lots. Carmelo & Bauermann is ordered to allow [6] Mayfair Theater, Inc. to buy the aforesaid lots for P11,300,000.00. The foregoing Decision of this Court became final and executory on March 17, 1997. On April 25, 1997, Mayfair filed a Motion for Execution, which the trial court granted. However, Carmelo could no longer be located. Thus, following the order of execution of the trial court, Mayfair deposited with the clerk of court a quo its payment to Carmelo in the sum of P11,300,000 lessP847,000 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 Equatorials ti tles and [7] issued new Certificates of Title in the name of Mayfair. Ruling on Equatorials Petition for Certiorari and Prohibition contesting the foregoing manner of execution, the CA in its Resolution of November 20, 1998, explained that Mayfair had no right to deduct the P847,000 as withholding tax. Since Carmelo could no longer be located, the appellate court ordered Mayfair to deposit the said sum with the Office of the Clerk of Court, Manila, to complete the full amount of P11,300,000 to be turned over to Equatorial. Equatorial questioned the legality of the above CA ruling before this Court in GR No. 136221 entitled Equatorial Realty Development, Inc. v. [8] Mayfair Theater, Inc. In a Decision promulgated on May 12, 2000, this Court directed the trial court to follow strictly the Decision in GR No. 106063, the mother case. It explained its ruling in these words: We agree that Carmelo and Bauermann is obliged to return the entire amount of eleven million three hundred thousand pesos (P11,300,000.00) to Equatorial. On the other hand, Mayfair may not deduct from the purchase price the amount of eight hundred forty-seven thousand pesos (P847,000.00) as withholding tax. The duty to withhold taxes due, if any, is imposed on the [9] seller, Carmelo and Bauermann, Inc. Meanwhile, on September 18, 1997 -- barely five months after Mayfair had submitted its Motion for Execution before the RTC of Manila, Branch 7 -Equatorial filed with the Regional Trial Court of Manila, Branch 8, an action for the collection of a sum of money against Mayfair, claiming payment of

rentals or reasonable compensation for the defendants use of the subject premises after its lease contracts had expired. This action was the progenitor of the present case. In its Complaint, Equatorial alleged among other things that the Lease Contract covering the premises occupied by Maxim Theater expired on May 31, 1987, while the Lease Contract covering the premises occupied by [10] Miramar Theater lapsed on March 31, 1989. Representing itself as the owner of the subject premises by reason of the Contract of Sale on July 30, 1978, it claimed rentals arising from Mayfairs occupation thereof.

1978 from whence the fountain of Equatorials alleged property rights flows is still valid and existing. xxx xxx xxx

The subject Deed of Absolute Sale having been rescinded by the Supreme Court, Equatorial is not the owner and does not have any right to demand [12] backrentals from the subject property. x x x. The trial court added: The Supreme Court in the Equatorial case, G.R. No. 106063, has categorically stated that the Deed of Absolute Sale dated July 31, 1978 has been rescinded subjecting the present complaint to res [13] judicata. Hence, the present recourse.
[14]

Ruling of the RTC Manila, Branch 8 As earlier stated, the trial court dismissed the Complaint via the herein assailed Order and denied the Motion for Reconsideration filed by [11] Equatorial. The lower court debunked the claim of petitioner for unpaid back rentals, holding that the rescission of the Deed of Absolute Sale in the mother case did not confer on Equatorial any vested or residual proprietary rights, even in expectancy. In granting the Motion to Dismiss, the court a quo held that the critical issue was whether Equatorial was the owner of the subject property and could thus enjoy the fruits or rentals therefrom. It declared the rescinded Deed of Absolute Sale as void at its inception as though it did not happen. The trial court ratiocinated as follows: The meaning of rescind in the aforequoted decision is to set aside. In the case of Ocampo v. Court of Appeals, G.R. No. 97442, June 30, 1994, the Supreme Court held that, to rescind is to declare a contract void in its inception and to put an end as though it never were. It is not merely to terminate it and release parties from further obligations to each other but to abrogate it from the beginning and restore parties to relative positions which they would have occupied had no contract ever been made. Relative to the foregoing definition, the Deed of Absolute Sale between Equatorial and Carmelo dated July 31, 1978 is void at its inception as though it did not happen. The argument of Equatorial that this complaint for backrentals as reasonable compensation for use of the subject property after expiration of the lease contracts presumes that the Deed of Absolute Sale dated July 30,

Issues Petitioner submits, for the consideration of this Court, the following [15] issues: A. The basis of the dismissal of the Complaint by the Regional Trial Court not only disregards basic concepts and principles in the law on contracts and in civil law, especially those on rescission and its corresponding legal effects, but also ignores the dispositive portion of the Decision of the Supreme Court in G.R. No. 106063 entitled Equatorial Realty Development, Inc. & Carmelo & Bauermann, Inc. vs. Mayfair Theater, Inc. B. The Regional Trial Court erred in holding that the Deed of Absolute Sale in favor of petitioner by Carmelo & Bauermann, Inc., dated July 31, 1978, over the premises used and occupied by respondent, having been deemed rescinded by the Supreme Court in G.R. No. 106063, is void at its inception as though it did not happen. C. The Regional Trial Court likewise erred in holding that the aforesaid Deed of Absolute Sale, dated July 31, 1978, having been deemed rescinded by the Supreme Court in G.R. No. 106063, petitioner is not the owner and does not

have any right to demand backrentals from the subject property, and that the rescission of the Deed of Absolute Sale by the Supreme Court does not confer to petitioner any vested right nor any residual proprietary rights even in expectancy. D. The issue upon which the Regional Trial Court dismissed the civil case, as stated in its Order of March 11, 1998, was not raised by respondent in its Motion to Dismiss. E. The sole ground upon which the Regional Trial Court dismissed Civil Case No. 97-85141 is not one of the grounds of a Motion to Dismiss under Sec. 1 of Rule 16 of the 1997 Rules of Civil Procedure. Basically, the issues can be summarized into two: (1) the substantive issue of whether Equatorial is entitled to back rentals; and (2) the procedural issue of whether the court a quos dismissal of Civil Case No. 97-85141 was based on one of the grounds raised by respondent in its Motion to Dismiss and covered by Rule 16 of the Rules of Court.

To better understand the peculiarity of the instant case, let us begin with [16] some basic parameters. Rent is a civil fruit that belongs to the owner of [17] [18] 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. By a contract of sale, one of the contracting parties obligates himself to transfer ownership of and to deliver a determinate thing and the other to pay [19] therefor a price certain in money or its equivalent. 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 [21] possession is transferred from the vendor to the vendee. This right is [22] transferred, not by contract alone, but by tradition or delivery. Non nudis pactis sed traditione dominia rerum transferantur. And there is said to be delivery if and when the thing sold is placed in the control an d possession of [23] the vendee. Thus, it has been held that while the execution of a public instrument of sale is recognized by law as equivalent to the delivery of the [24] thing sold, such constructive or symbolic delivery, being merely presumptive, is deemed negated by the failure of the vendee to take actual [25] possession of the land sold. Delivery has been described as a composite act, a thing in which both parties must join and the minds of both parties concur. It is an act by which one party parts with the title to and the possession of the property, and the other acquires the right to and the possession of the same. In its natural sense, delivery means something in addition to the delivery of property or [26] title; it means transfer of possession. In the Law on Sales, delivery may be either actual or constructive, but both forms of delivery contemplate the absolute giving up of the control and custody of the property on the part of [27] the vendor, and the assumption of the same by the vendee.
[20]

This Courts Ruling The Petition is not meritorious.

First Issue: Ownership of Subject Properties Possession Never Acquired by Petitioner We hold that under the peculiar facts and circumstances of the case at bar, as found by this Court en banc in its Decision promulgated in 1996 in the mother case, no right of ownership was transferred from Carmelo to Equatorial in view of a patent failure to deliver the property to the buyer. Let us now apply the foregoing discussion to the present issue. From the peculiar facts of this case, it is clear that petitioner never took actual control and possession of the property sold, in view of respondents timely objection to the sale and the continued actual possession of the property. The objection took the form of a court action impugning the sale which, as we know, was rescinded by a judgment rendered by this Court in the mother case. It has been held that the execution of a contract of sale as a form of constructive delivery is a legal fiction. It holds true only when there is no impediment that may prevent the passing of the property from the

Rental - a Civil Fruit of Ownership

hands of the vendor into those of the vendee. When there is such [29] impediment, fiction yields to reality - the delivery has not been effected. Hence, respondents oppos ition to the transfer of the property by way of sale to Equatorial was a legally sufficient impediment that effectively prevented the passing of the property into the latters hands. This was the same impediment contemplated in Vda. de Sarmiento v. [30] Lesaca, in which the Court held as follows: The question that now arises is: Is there any stipulation in the sale in question from which we can infer that the vendor did not intend to deliver outright the possession of the lands to the vendee? We find none. On the contrary, it can be clearly seen therein that the vendor intended to place the vendee in actual possession of the lands immediately as can be inferred from the stipulation that the vendee takes actual possession thereof x x x with full rights to dispose, enjoy and make use thereof in such manner and form as would be most advantageous to herself. The possession referred to in the contract evidently refers to actual possession and not merely symbolical inferable from the mere execution of the document. Has the vendor complied with this express commitment? she did not. As provided in Article 1462, the thing sold shall be deemed delivered when the vendee is placed in the control and possession thereof, which situation does not here obtain because from the execution of the sale up to the present the vendee was never able to take possession of the lands due to the insistent refusal of Martin Deloso to surrender them claiming ownership thereof. And although it is postulated in the same article that the execution of a public document is equivalent to delivery, this legal fiction only holds true when there is no impediment that may prevent the passing of the property from the [31] hands of the vendor into those of the vendee. x x x. The execution of a public instrument gives rise, therefore, only to a prima facie presumption of delivery. Such presumption is destroyed when the instrument itself expresses or implies that delivery was not intended; or when by other means it is shown that such delivery was not effected, because a third person was actually in possession of the thing. In the latter case, the sale cannot be considered consummated. However, the point may be raised that under Article 1164 of the Civil Code, Equatorial as buyer acquired a right to the fruits of the thing sold from [32] the time the obligation to deliver the property to petitioner arose. That time arose upon the perfection of the Contract of Sale on July 30, 1978, from which moment the laws provide that the parties to a sale may reciprocally [33] demand performance. Does this mean that despite the judgment [34] rescinding the sale, the right to the fruits belonged to, and remained enforceable by, Equatorial?

[28]

Article 1385 of the Civil Code answers this question in the negative, because [r]escission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; x x x. Not only the land and building sold, but also the rental payments paid, if any, had to be returned by the buyer. Another point. The Decision in the mother case stated that Equatorial x x x has received rents from Mayfair during all the years that this controversy has been litigated. The Separate Opinion of Justice Teodoro Padilla in the mother case also said that Equatorial was deriving rental income from the disputed property. Even herein ponentes Separate Concurring Opinion in the mother case recognized these rentals. The question now is: Do all these statements concede actual delivery? The answer is No. The fact that Mayfair paid rentals to Equatorial during the litigation should not be interpreted to mean either actual delivery or ipso facto recognition of Equatorials title. The CA Records of the mother case show that Equatorial - as alleged buyer of the disputed properties and as alleged successor-in-interest of Carmelos rights as lessor - submitted two ejectment suits against Mayfair. Filed in the Metropolitan Trial Court of Manila, the first was docketed as Civil Case No. 121570 on July 9, 1987; and the second, as Civil Case No. 131944 on May 28, 1990. Mayfair eventually won them both. However, to be able to maintain physical possession of the premises while awaiting the outcome of the mother case, it had no choice but to pay the rentals. The rental payments made by Mayfair should not be construed as a recognition of Equatorial as the new owner. They were made merely to avoid imminent eviction. It is in this context that one should understand the aforequoted factual statements in the ponencia in the mother case, as well as the Separate Opinion of Mr. Justice Padilla and the Separate Concurring Opinion of the herein ponente. At bottom, it may be conceded that, theoretically, a rescissible contract is valid until rescinded. However, this general principle is not decisive to the issue of whether Equatorial ever acquired the right to collect rentals. What is decisive is the civil law rule that ownership is acquired, not by mere agreement, but by tradition or delivery. Under the factual environment of this controversy as found by this Court in the mother case, Equatorial was never put in actual and effective control or possession of the property because of Mayfairs timely objection. As pointed out by Justice Holmes, general propositions do not decide specific cases. Rather, laws are interpreted in the context of the peculiar factual situation of each case. Each case has its own flesh and blood and [36] cannot be decided on the basis of isolated clinical classroom principles.
[35]

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.

or interest in the property superior to its own. Carmelo and Equatorial took [37] unconscientious advantage of Mayfair. (Italics supplied) Thus, petitioner was and still is entitled solely to the return of the purchase price it paid to Carmelo; no more, no less. This Court has firmly ruled in the mother case that neither of them is entitled to any consideration [38] of equity, as both took unconscientious advantage of Mayfair. In the mother case, this Court categorically denied the payment of interest, a fruit of ownership. By the same token, rentals, another fruit of ownership, cannot be granted without mocking this Courts en banc Decision, which has long become final. Petitioners claim of reasonable compensation for respondents use and occupation of the subject property from the time the lease expired cannot be countenanced. If it suffered any loss, petitioner must bear it in silence, since it had wrought that loss upon itself. Otherwise, bad faith would be rewarded instead of punished. We uphold the trial courts disposition, not for the reason it gave, but for (a) the patent failure to deliver the property and (b) petitioners bad faith, as above discussed.

Benefits Precluded by Petitioners Bad Faith Furthermore, assuming for the sake of argument that there was valid delivery, petitioner is not entitled to any benefits from the rescinded Deed of Absolute Sale because of its bad faith. This being the law of the mother case decided in 1996, it may no longer be changed because it has long become final and executory. Petitioners bad faith is set forth in the following pertinent portions of the mother case: First and foremost is that the petitioners acted in bad faith to render Paragraph 8 inutile. xxx xxx xxx

Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question rescissible. We agree with respondent Appellate Court that the records bear out the fact that Equatorial was aware of the lease contracts because its lawyers had, prior to the sale, studied the said contracts. As such, Equatorial cannot tenably claim to be a purchaser in good faith, and, therefore, rescission lies. xxx xxx xxx

Second Issue: Ground in Motion to Dismiss Procedurally, petitioner claims that the trial court deviated from the accepted and usual course of judicial proceedings when it dismissed Civil Case No. 97-85141 on a ground not raised in respondents Motion to Dismiss. Worse, it allegedly based its dismissal on a ground not provided for in a motion to dismiss as enunciated in the Rules of Court. We are not convinced. A review of respondents Motion to Dismiss Civil Case No. 97-85141 shows that there were two grounds invoked, as follows: (A) Plaintiff is guilty of forum-shopping. (B) Plaintiffs cause of action, if any, is barred by prior judgment.
[39]

As also earlier emphasized, the contract of sale between Equatorial and Carmelo is characterized by bad faith, since it was knowingly entered into in violation of the rights of and to the prejudice of Mayfair. In fact, as correctly observed by the Court of Appeals, Equatorial admitted that its lawyers had studied the contract of lease prior to the sale. Equatorials knowledge of the stipulations therein should have cautioned it to look further into the agreement to determine if it involved stipulations that would prejudice its own interests. xxx xxx xxx

On the part of Equatorial, it cannot be a buyer in good faith because it bought the property with notice and full knowledge that Mayfair had a right to

The court a quo ruled, inter alia, that the cause of action of petitioner (plaintiff in the case below) had been barred by a prior judgment of this Court in GR No. 106063, the mother case. Although it erred in its interpretation of the said Decision when it argued that the rescinded Deed of Absolute Sale was void, we hold, nonetheless, that petitioners cause of action is indeed barred by a prior judgment of this Court. As already discussed, our Decision in GR No. 106063 shows that petitioner is not entitled to back rentals, because it never became the owner of the disputed properties due to a failure of delivery. And even assuming arguendo that there was a valid delivery, petitioners bad faith negates its entitlement to the civil fruits of ownership, like interest and rentals. Under the doctrine of res judicata or bar by prior judgment, a matter that has been adjudicated by a court of competent jurisdiction must be deemed to have been finally and conclusively settled if it arises in any subsequent [40] litigation between the same parties and for the same cause. Thus, [a] final judgment on the merits rendered by a court of competent jurisdiction is conclusive as to the rights of the parties and their privies and constitutes an absolute bar to subsequent actions involving the same claim, demand, or [41] cause of action. Res judicata is based on the ground that the party to be affected, or some other with whom he is in privity, has litigated the same matter in a former action in a court of competent jurisdiction, and should not [42] be permitted to litigate it again. It frees the parties from undergoing all over again the rigors of unnecessary suits and repetitive trials. At the same time, it prevents the clogging of court dockets. Equally important, it stabilizes rights and promotes the rule of law. We find no need to repeat the foregoing disquisitions on the first issue to show satisfaction of the elements of res judicata. Suffice it to say that, clearly, our ruling in the mother case bars petitioner from claiming back rentals from respondent. Although the court a quo erred when it declared void from inception the Deed of Absolute Sale between Carmelo and petitioner, our foregoing discussion supports the grant of the Motion to Dismiss on the ground that our prior judgment in GR No. 106063 has already resolved the issue of back rentals. On the basis of the evidence presented during the hearing of Mayfairs Motion to Dismiss, the trial court found that the issue of ownership of the subject property has been decided by this Court in favor of Mayfair. We quote the RTC: The Supreme Court in the Equatorial case, G.R. No. 106063 has categorically stated that the Deed of Absolute Sale dated July 31, 1978 has

been rescinded subjecting the present complaint to res [43] judicata. (Emphasis in the original) Hence, the trial court decided the Motion to Dismiss on the basis of res judicata, even if it erred in interpreting the meaning of rescinded as equivalent to void. In short, it ruled on the ground raised; namely, bar by prior judgment. By granting the Motion, it disposed correctly, even if its legal reason for nullifying the sale was wrong. The correct reasons are given in this Decision. WHEREFORE, the Petition is hereby DENIED. Costs against petitioner. SO ORDERED.

You might also like