Case Summary (G.R. No. 119255)
Key Dates and Procedural Overview
Receipt evidencing earnest money: 30 June 1989. Manager’s checks and meetings: 13–14 July 1989. Payment deadline for balance: on or before 15 July 1989. Initial complaint filed 17 July 1989 (dismissed 22 Nov. 1989), refiled 29 Nov. 1989 as Civil Case No. 89‑5772. Trial court judgment in favor of Chua (dated 29 Aug. 1991). Court of Appeals reversed (23 Feb. 1995). Supreme Court decision reviewed (April 9, 2003).
Factual Background — Agreement and Payments Tendered
Valdes‑Choy advertised the Property for sale; Chua responded. Parties agreed on a P10,800,000 purchase price payable in cash. On 30 June 1989 Chua delivered a PBCom check for P100,000 as earnest money; a receipt specified the balance (P10,700,000 then, later reflected as P10,215,000 in documents) payable on or before 15 July 1989, capital gains tax to be for seller’s account, and that failure to pay by the deadline would forfeit the earnest money “provided that all papers are in proper order.” On 13–14 July 1989 Chua obtained manager’s checks: one for P485,000 (for capital gains tax) which he handed over; another for P10,215,000 representing the balance was shown to Valdes‑Choy but not delivered because Chua demanded registration of title in his name first. Valdes‑Choy tore up the deeds of sale after that dispute. Valdes‑Choy procured a manager’s check for the capital gains tax and counsel undertook payment. Chua gave PBCom a stop‑payment claim then later confirmed an affidavit of loss for a manager’s check; evidence was that the bank nevertheless honored one manager’s check.
Trial Court Ruling and Relief Ordered
The trial court found a binding contract to sell (based on the receipt) and that the buyer was ready to pay the balance before the deadline. It ruled that the seller failed to put papers “in proper order” — in particular, the capital gains tax had not been shown paid — and thus faulted the seller for the impasse. The court ordered specific performance with detailed mechanics: surrender of owner’s duplicate TCT, deeds of sale, tax declarations and receipts to the court clerk; deposit of P10,295,000 by the buyer to the clerk; clerk to effect BIR payment, register the sale, and secure issuance of a new Torrens title to the buyer; allowed clerk to execute deeds if seller refused; awarded damages, attorney’s fees and costs and set accounting and release provisions.
Court of Appeals Ruling and Rationale
The Court of Appeals reversed and set aside the trial court judgment. It held that the transaction was not consummated as a contract of sale; the buyer’s insistence that a new TCT be issued before paying the balance was not part of the parties’ agreement and went beyond “all papers are in proper order.” The CA found that the seller was in a position to deliver the customary documentary requirements (owner’s duplicate, signed deeds, tax declarations and latest tax receipt) and that the capital gains tax computation/payment did not affect the validity of the deeds; the buyer’s conduct amounted to refusal to pay and justified forfeiture of the P100,000 earnest money. The CA ordered dismissal of the case, forfeiture of the P100,000 to the defendant, return of P485,000 to plaintiff, dismissal of counterclaim and costs.
Issues Presented to the Supreme Court
Main legal questions distilled by the Court: (a) whether the parties’ transaction was a perfected contract of sale or only a contract to sell; and (b) whether the buyer can compel the seller to cause issuance of a new TCT in the buyer’s name before full payment of the purchase price. Additional issues raised by petitioner included whether rescission procedures under Art. 1592 were required, whether withholding payment was justified, and whether earnest money forfeiture was proper.
Supreme Court Holding — Affirmation of the Court of Appeals
The Supreme Court affirmed the Court of Appeals in toto. It concluded that the agreement evidenced by the receipt was a contract to sell (ownership retained by seller until full payment), not a contract of sale; therefore the buyer acquired no right to compel transfer of ownership or registration until full payment was made. Because full payment was a suspensive condition, its non‑fulfillment prevented the obligation to convey from arising.
Legal Analysis — Contract to Sell vs. Contract of Sale
The Court applied established distinctions: in a contract of sale, ownership passes and vendor cannot recover it unless the contract is rescinded; in a contract to sell, seller retains title until full payment. The Court found several indicia of a contract to sell: (1) the receipt expressly permitted forfeiture of earnest money upon buyer’s failure to pay by the deadline and effectively reserved to seller the right not to proceed; (2) the agreement at the time was evidenced by a receipt rather than a formal deed of conveyance; (3) the seller retained possession of the owner’s duplicate TCT and other documents; and (4) the parties’ subsequent deeds of sale were signed only after the buyer represented he would pay — showing that ownership transfer was intended to follow payment. The Court held Art. 1482 (earnest money as proof of perfection in a contract of sale) was inapplicable because the earnest money here was given under a contract to sell and was expressly forfeitable.
Payment, “All Papers in Proper Order,” and Capital Gains Tax Issue
The Court addressed the meaning of “all papers are in proper order” and rejected the trial court’s narrower interpretation that proof of capital gains tax payment was a prerequisite for the seller’s obligation. The Supreme Court agreed with the CA that customary documentary completeness — owner’s duplicate TCT, signed deed(s) of sale, tax declaration and latest realty tax receipt — constituted papers being “in proper order.” Payment of capital gains tax, while a tax liability of the seller, did not render the deeds invalid nor was its payment a condition precedent to the seller’s ability to sign the deed or to transfer ownership between parties. The Court emphasized the legal difference between transfer of ownership (effected by execution and notarization of the deed) and registration/issuance of a new Torrens title (which binds third parties and gives public notice). Registration is not a mode of acquisition between seller and buyer; ownership passes upon delivery or, for immovables, upon execution of th
...continue readingCase Syllabus (G.R. No. 119255)
The Case
- This is a petition for review on certiorari to the Supreme Court seeking to reverse the Court of Appeals decision in an action for specific performance originally filed in the Regional Trial Court (Civil Case No. 89-5772, Branch 142, Makati) by petitioner Tomas K. Chua against respondent Encarnacion Valdes‑Choy.
- Petitioner sought to compel respondent to consummate the sale of her paraphernal house and lot in Makati City.
- The Court of Appeals reversed the trial court’s judgment in favor of Chua and rendered judgment dismissing the case and declaring the earnest money forfeited in favor of Valdes‑Choy, among other reliefs.
- The Supreme Court docketed the petition and resolved issues concerning whether the parties had a perfected contract of sale or only a contract to sell and whether the buyer could compel issuance of a new Torrens certificate of title (TCT) before paying the full purchase price.
Facts
- The property: a paraphernal house and lot, area 718 square meters, located at No. 40 Tampingco Street corner Hidalgo Street, San Lorenzo Village, Makati City.
- Title: property is covered by Transfer Certificate of Title No. 162955 issued by the Register of Deeds of Makati City in the name of Encarnacion Valdes‑Choy.
- Negotiations and agreed price: Chua responded to Valdes‑Choy’s advertisement; after meetings they agreed on a purchase price of P10,800,000.00 payable in cash.
- Earnest money: on 30 June 1989, Valdes‑Choy received from Chua PBCom Check No. 206011 in the amount of P100,000.00 as earnest money. The Receipt stated: balance of P10,700,000.00 is payable on or before 15 July 1989; capital gains tax is for the account of the seller; failure to pay balance on or before 15 July 1989 forfeits the earnest money; provided that “all papers are in proper order.” Receipt was signed “CONFORME: ENCARNACION VALDES Seller / TOMAS K. CHUA Buyer.”
- Manager’s checks and stop payment episode: on the morning of 13 July 1989, Chua secured from Philippine Bank of Commerce (PBCom) a manager’s check for P480,000.00 but immediately gave PBCom a verbal stop payment order claiming the check was lost/misplaced; PBCom Assistant Vice‑President Julie C. Pe notified PBCom Operations Group in writing of the stop payment order.
- July 13 meeting and deeds: on 13 July 1989, parties met with counsels to execute documents and arrange payments. Valdes‑Choy and Chua signed two Deeds of Absolute Sale: one covering the house and lot for P8,000,000.00 and another covering furnishings, fixtures and movables for P2,800,000.00. Parties also computed capital gains tax to amount to P485,000.00.
- July 14 payments and receipts: on 14 July 1989, Chua handed Valdes‑Choy PBCom manager’s check for P485,000.00 so Valdes‑Choy could pay the capital gains tax. Valdes‑Choy issued a receipt indicating Chua had a remaining balance of P10,215,000.00 after deducting advances and noting “PLUS P80,000.00 for documentary stamps paid in advance by seller” and reflecting total purchase price P10,800,000.00 with P585,000.00 paid/advanced.
- Capital gains payment mechanics: on 14 July 1989, Valdes‑Choy, accompanied by Chua, deposited the P485,000.00 manager’s check in her account with Traders Royal Bank and purchased a Traders Royal Bank manager’s check for P480,000.00 payable to the Commissioner of Internal Revenue; Valdes‑Choy and Chua handed that check to Valdes‑Choy’s counsel who undertook to pay the capital gains tax.
- Refusal to deliver balance check and tearing of deeds: on 14 July 1989, Chua showed Valdes‑Choy a PBCom manager’s check for P10,215,000.00 (balance) but did not give it because the TCT was still registered in Valdes‑Choy’s name and Chua required the Property be registered in his name before he would turn over the check; Valdes‑Choy tore up the Deeds of Sale claiming the demand was not part of their agreement.
- Affidavit of loss and bank testimony: on 14 July 1989 Chua confirmed his stop payment order by submitting to PBCom an affidavit of loss of the PBCom manager’s check for P480,000.00; PBCom AVP Pe testified the manager’s check was nevertheless honored because Chua subsequently verbally advised the bank that he was lifting the stop‑payment order due to a “special arrangement” with the bank.
- Escrow suggestion: on 15 July 1989 (deadline for payment), Valdes‑Choy suggested to her counsel that Chua deposit P10,215,000.00 in escrow; upon such deposit she would be willing to cause issuance of a new TCT in Chua’s name even without receiving the balance; counsel promised to relay the suggestion but nothing resulted.
- Procedural chronology: Chua filed a complaint for specific performance on 17 July 1989 (dismissed 22 Nov 1989); he re‑filed the complaint with damages on 29 Nov 1989; the trial court ultimately rendered judgment in favor of Chua; Valdes‑Choy appealed; the Court of Appeals reversed on 23 February 1995; Chua filed the present petition for review on certiorari to the Supreme Court.
Trial Court Ruling (dispositive orders and findings)
- Trial court found an impasse caused by Valdes‑Choy’s demand to be fully paid before issuing a new TCT and Chua’s refusal to pay unless title was transferred; it faulted Valdes‑Choy for causing the impasse.
- The trial court held the parties entered into a contract to sell on 30 June 1989 as evidenced by the Receipt for P100,000.00 earnest money; it interpreted the contract terms as: balance P10,700,000.00 payable not later than 15 July 1989; Valdes‑Choy may stay in the Property until 13 August 1989; all papers must be “in proper order” before full payment.
- The trial court concluded Chua complied with contract terms, demonstrated readiness to pay on 13 July 1989 (produced PBCom manager’s check for P10,215,000.00), and added P80,000.00 for documentary stamps. It concluded Valdes‑Choy did not put “all papers in proper order” because capital gains tax had not been paid (no BIR receipt), and that the documents without the BIR receipt were “useless” for issuance of a new TCT.
- The trial court ordered, among other things:
- delivery to court within five days of owner’s duplicate of TCT No. 162955, covering tax declaration and latest tax receipt, and the two Deeds of Sale (notarized or not) executed by defendant;
- upon compliance, plaintiff to deposit P10,295,000.00 with Branch Clerk of Court (balance including P80,000 for stamps);
- Branch Clerk to represent with BIR for payment of capital gains tax and pay same from deposited funds; present deed and TCT to Makati Register of Deeds and pay registration fees; cause issuance of new Torrens title and surrender to plaintiff; allow Branch Clerk to prepare/sign deeds if defendant refuses to surrender executed deeds; order surrender of premises with furnishings within 72 hours from receipt of sale proceeds; award moral/compensatory damages and attorney’s fees to plaintiff; authorize release of certain amounts from deposited funds and release of balance to defendant after deducting expenses and taxes.
- The trial court provided alternative relief in case specific performance could not be done: refund of earnest money with interest, refund of P485,000.00 with interest, payment of moral and exemplary damages, and reimbursement for attorney’s fees and costs.
Court of Appeals Ruling (disposition and reasoning)
- The Court of Appeals reversed and set aside the trial court decision and rendered judgment stating:
- Dismiss Civil Case No. 89‑5772;
- Declare P100,000.00 earnest money forfeited in favor of defendant‑appellant (Valdes‑Choy);
- Order defendant‑appellant to return/refund P485,000.00 to plaintiff‑appellee without interest;
- Dismiss defendant‑appellant’s compulsory counterclaim;
- Order plaintiff‑appellee to pay costs.
- The Court of Appeals found Chua’s condition that the property be registered in his name before paying full consideration was not part of the parties’ agreement and emphasized the difference between the phrase “all papers are in proper order” and a demand for “transfer of title.”
- It found that all papers were in order (owner’s duplicate TCT, signed Deeds of Sale, tax declarations, latest realty tax receipt) and that Chua had no valid reason to withhold payment on the agreed date.
- The Court of Appeals held that Chua’s showing of the PBCom manager’s check was not payment and that actual payment was required.
- On the capital gains tax, the Court of Appeals reasoned that computation/payment of capital gains tax had no bearing on the validity/effectiveness of the Deeds of Sale because final computation may be made only after presentation of the Deeds of Absolute Sale to the BIR; the deposit and purchase of a TRB manager’s check for the BIR allayed fears the tax would not be paid.