"x x x.
Our Ruling
The instant petition is bereft of merit.
There is only a single issue for resolution in the instant petition, to wit, whether or not the failure of the petitioner to deliver to the respondent both the physical possession of the subject property and the certificate of title covering the same amount to a substantial breach of the former's obligations to the latter constituting a valid cause to rescind the agreement and deed of sale entered into by the parties.
We rule in the affirmative.
The RTC and the CA both found that the petitioner failed to comply with her obligations to deliver to the respondent both the possession of the subject property and the certificate of title covering the same.
Although Articles 1458, 1495 and 1498 of the NCC and case law do not generally require the seller to deliver to the buyer the physical possession of the property subject of a contract of sale and the certificate of title covering the same, the agreement entered into by the petitioner and the respondent provides otherwise. However, the terms of the agreement cannot be considered as violative of law, morals, good customs, public order, or public policy, hence, valid.
Article 1458 of the NCC obliges the seller to transfer the ownership of and to deliver a determinate thing to the buyer, who shall in turn pay therefor a price certain in money or its equivalent. In addition thereto, Article 1495 of the NCC binds the seller to warrant the thing which is the object of the sale. On the other hand, Article 1498 of the same code provides that 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.
In the case of Chua v. Court of Appeals,[22] which was cited by the petitioner, it was ruled that “when the deed of absolute sale is signed by the parties and notarized, then delivery of the real property is deemed made by the seller to the buyer.”[23] The transfer of the certificate of title in the name of the buyer is not necessary to confer ownership upon him.
In the case now under our consideration, item nos. 2 and 3 of the agreement entered into by the petitioner and the respondent explicitly provide:
2. ONE HUNDRED EIGHTY FIVE THOUSAND (P185,000.00) PESOS of the total price was already received on March 27, 1998 for payment of the loan secured by the certificate of title covering the land in favor of the Rural Bank of Cauayan, San Manuel Branch, San Manuel, Isabela, in order that the certificate of title thereof be withdrawn and released from the said bank, and the rest shall be for the payment of the mortgages in favor of Romeo Lacaden and Florante Parangan;
3. After the release of the certificate of title covering the land subject-matter of this agreement, the necessary deed of absolute sale in favor of the PARTY OF THE SECOND PART shall be executed and the transfer be immediately effected so that the latter can apply for a loan from any lending institution using the corresponding certificate of title as collateral therefor, and the proceeds of the loan, whatever be the amount, be given to the PARTY OF THE FIRST PART;[24] (underlining supplied)
As can be gleaned from the agreement of the contending parties, the respondent initially paid the petitioner P185,000.00 for the latter to pay the loan obtained from the Rural Bank of Cauayan and to cause the release from the said bank of the certificate of title covering the subject property. The rest of the amount shall be used to pay the mortgages over the subject property which was executed in favor of Lacaden and Parangan. After the release of the TCT, a deed of sale shall be executed and transfer shall be immediately effected so that the title covering the subject property can be used as a collateral for a loan the respondent will apply for, the proceeds of which shall be given to the petitioner.
Under Article 1306 of the NCC, 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.
While Articles 1458 and 1495 of the NCC and the doctrine enunciated in the case of Chua do not impose upon the petitioner the obligation to physically deliver to the respondent the certificate of title covering the subject property or cause the transfer in the latter's name of the said title, a stipulation requiring otherwise is not prohibited by law and cannot be regarded as violative of morals, good customs, public order or public policy. Item no. 3 of the agreement executed by the parties expressly states that “transfer [shall] be immediately effected so that the latter can apply for a loan from any lending institution using the corresponding certificate of title as collateral therefore.” Item no. 3 is literal enough to mean that there should be physical delivery of the TCT for how else can the respondent use it as a collateral to obtain a loan if the title remains in the petitioner’s possession. We agree with the RTC and the CA that the petitioner failed to prove that she delivered the TCT covering the subject property to the respondent. What the petitioner attempted to establish was that she gave the TCT to Atty. Antonio whom she alleged was commissioned to effect the transfer of the title in the respondent's name. Although Atty. Antonio's existence is certain as he was the petitioner’s counsel in the proceedings before the RTC, there was no proof that the former indeed received the TCT or that he was commissioned to process the transfer of the title in the respondent's name.
It is likewise the petitioner’s contention that pursuant to Article 1498 of the NCC, she had already complied with her obligation to deliver the subject property upon her execution of an absolute deed of sale in the respondent’s favor. The petitioner avers that she did not undertake to eject the mortgagors Parangan and Lacaden, whose presence in the premises of the subject property was known to the respondent.
We are not persuaded.
In the case of Power Commercial and Industrial Corporation[25] cited by the petitioner, the Court ruled that the failure of the seller to eject the squatters from the property sold cannot be made a ground for rescission if the said ejectment was not stipulated as a condition in the contract of sale, and when in the negotiation stage, the buyer's counsel himself undertook to eject the illegal settlers.
The circumstances surrounding the case now under our consideration are different. In item no. 2 of the agreement, it is stated that part of the P185,000.00 initially paid to the petitioner shall be used to pay the mortgagors, Parangan and Lacaden. While the provision does not expressly impose upon the petitioner the obligation to eject the said mortgagors, the undertaking is necessarily implied. Cessation of occupancy of the subject property is logically expected from the mortgagors upon payment by the petitioner of the amounts due to them.
We note that in the demand letter[26] dated September 18, 1998, which was sent by the respondent to the petitioner, the former lamented that “the area is not yet fully cleared of incumbrances as there are tenants who are not willing to vacate the land without giving them back the amount that they mortgaged the land.” Further, in the proceedings before the RTC conducted after the complaint for rescission was filed, the petitioner herself testified that she won the ejectment suit against the mortgagors “only last year”.[27] The complaint was filed on September 8, 2002 or more than four years from the execution of the parties' agreement. This means that after the lapse of a considerable period of time from the agreement's execution, the mortgagors remained in possession of the subject property.
Notwithstanding the absence of stipulations in the agreement and absolute deed of sale entered into by Villamar and Mangaoil expressly indicating the consequences of the former's failure to deliver the physical possession of the subject property and the certificate of title covering the same, the latter is entitled to demand for the rescission of their contract pursuant to Article 1191 of the NCC.
We note that the agreement entered into by the petitioner and the respondent only contains three items specifying the parties' undertakings. In item no. 5, the parties consented “to abide with all the terms and conditions set forth in this agreement and never violate the same.”[28]
Article 1191 of the NCC is clear that “the power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.” The respondent cannot be deprived of his right to demand for rescission in view of the petitioner’s failure to abide with item nos. 2 and 3 of the agreement. This remains true notwithstanding the absence of express stipulations in the agreement indicating the consequences of breaches which the parties may commit. To hold otherwise would render Article 1191 of the NCC as useless.
Article 1498 of the NCC generally considers the execution of a public instrument as constructive delivery by the seller to the buyer of the property subject of a contract of sale. The case at bar, however, falls among the exceptions to the foregoing rule since a mere presumptive and not conclusive delivery is created as the respondent failed to take material possession of the subject property.
Further, even if we were to assume for argument's sake that the agreement entered into by the contending parties does not require the delivery of the physical possession of the subject property from the mortgagors to the respondent, still, the petitioner's claim that her execution of an absolute deed of sale was already sufficient as it already amounted to a constructive delivery of the thing sold which Article 1498 of the NCC allows, cannot stand.
In Philippine Suburban Development Corporation v. The Auditor General,[29] we held:
When the sale of real property is made in a public instrument, the execution thereof is equivalent to the delivery of the thing object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred.
In other words, there is symbolic delivery of the property subject of the sale by the execution of the public instrument, unless from the express terms of the instrument, or by clear inference therefrom, this was not the intention of the parties. Such would be the case, for instance, x x x where the vendor has no control over the thing sold at the moment of the sale, and, therefore, its material delivery could not have been made.[30](Underlining supplied and citations omitted)
Stated differently, as a general rule, the execution of a public instrument amounts to a constructive delivery of the thing subject of a contract of sale. However, exceptions exist, among which is when mere presumptive and not conclusive delivery is created in cases where the buyer fails to take material possession of the subject of sale. A person who does not have actual possession of the thing sold cannot transfer constructive possession by the execution and delivery of a public instrument.
In the case at bar, the RTC and the CA found that the petitioner failed to deliver to the respondent the possession of the subject property due to the continued presence and occupation of Parangan and Lacaden. We find no ample reason to reverse the said findings. Considered in the light of either the agreement entered into by the parties or the pertinent provisions of law, the petitioner failed in her undertaking to deliver the subject property to the respondent.
x x x."