Case Summary (G.R. No. 208284)
Key Dates and Procedural History
1967 & 1969: Carmelo leased portions of the subject property to Mayfair (20‑year leases with right of first refusal).
July 30/31, 1978: Carmelo executed a Deed of Absolute Sale to Equatorial for P11,300,000.
September 1978 onward: Mayfair filed suit challenging the sale (annulment, specific performance, damages) — litigation culminated in the “mother case” GR No. 106063.
November 21, 1996 (mother case): Supreme Court en banc deemed the Deed of Absolute Sale rescinded and ordered return of purchase price and conveyancing steps; decision became final and executory March 17, 1997.
April–May 1997: Execution proceedings; Mayfair deposited funds when Carmelo could not be located; titles in Mayfair’s name were later issued.
September 18, 1997: Equatorial filed the present action for back rentals in RTC, Branch 8 (Civil Case No. 97‑85141).
March 11, 1998 and May 29, 1998: RTC granted Mayfair’s motion to dismiss and denied reconsideration.
May 12, 2000: This Court in GR No. 136221 clarified execution questions and reaffirmed that Mayfair may not deduct withholding tax from the purchase price.
November 21, 2001: This en banc decision denying Equatorial’s petition.
Applicable Law and Authorities Cited
- 1987 Philippine Constitution (applicable by instruction for cases decided post‑1990).
- Civil Code provisions invoked in the decision: Articles 1458 (sale definition), 1496–1498 (delivery and constructive delivery), 1164 (fruits and real rights), 1381 and 1385 (effects of rescission), 1475 (perfection of sale), 1497–1498 (delivery by public instrument), and related Civil Code rules on fruits, accession, and rescission.
- Rules of Court: Rule 45 (petition for review on certiorari), Rule 16 (motion to dismiss grounds).
- Doctrines and precedents referenced: delivery/tradition as requisite to transfer of ownership; presumption of delivery from public instrument subject to rebuttal; res judicata (bar by prior judgment).
Factual Background (Concise)
Carmelo owned the Recto Avenue property and leased specified portions to Mayfair under 20‑year leases containing a right of first refusal. Carmelo sold the property to Equatorial in 1978 without offering it to Mayfair. Mayfair sued to annul the sale and to enforce its right of first refusal. After litigation through the trial court and Court of Appeals, the Supreme Court in the mother case deemed the sale rescissible, ordered return of the purchase price, and directed steps to restore ownership and permit Mayfair to purchase. Execution complications followed because Carmelo could not be located; Mayfair deposited funds and new titles were eventually issued in Mayfair’s name. Equatorial then sued Mayfair for back rentals allegedly due after lease expiration.
RTC Ruling in the Present Case
The RTC, Branch 8, granted Mayfair’s motion to dismiss Equatorial’s complaint for rentals, reasoning that the Deed of Absolute Sale had been “deemed rescinded” by the Supreme Court and therefore was “void at its inception,” such that Equatorial was not the owner and could not claim rentals. The RTC denied Equatorial’s motion for reconsideration.
Issues Presented to the Supreme Court
Equatorial’s petition raised five articulated points, summarized by the Court into two principal issues: (1) substantive — whether Equatorial is entitled to back rentals or reasonable compensation for Mayfair’s occupation after lease expiration; and (2) procedural — whether the RTC properly dismissed the case on a ground raised in Mayfair’s motion to dismiss and within the grounds authorized by Rule 16.
Supreme Court Holding (Disposition)
The Supreme Court denied Equatorial’s petition and affirmed dismissal of Equatorial’s complaint, but on legal grounds different from those stated by the RTC. The Court held (a) Equatorial never acquired ownership enforceable against Mayfair because there was a patent failure of delivery in the factual context of this case; (b) even if delivery were assumed, Equatorial’s proven bad faith precludes entitlement to civil fruits (rentals); and (c) the trial court’s dismissal was supportable on the ground of res judicata (bar by prior judgment) raised in Mayfair’s motion to dismiss, notwithstanding the RTC’s mistaken characterization of the sale as “void ab initio.”
Reasoning: Ownership, Delivery, and Civil Fruits
- Fundamental rule applied: ownership under a contract of sale is not acquired by mere agreement alone but by tradition or delivery; delivery may be actual or constructive but both require transfer of control and custody.
- A public instrument of sale creates only a prima facie presumption of delivery; that presumption is rebutted when delivery was not intended or actual possession remained with a third person.
- In the factual milieu of the mother case, Mayfair timely and effectively objected to the sale and remained in actual possession; this objection and possession constituted a legally effective impediment to delivery to Equatorial so that Equatorial did not attain the real right of ownership enforceable against Mayfair.
- Rent is a civil fruit belonging to the owner; a rescinded sale requires return of both the thing sold and its fruits under Article 1385. Thus, Equatorial cannot claim rentals once rescission is judicially declared and enforced.
Reasoning: Rents Paid During Litigation and Constructive Delivery
- Although Equatorial received rental payments from Mayfair during litigation and filed ejectment actions against Mayfair, the Court viewed those payments as made by Mayfair to avoid eviction while ownership disputes were pending, not as unequivocal recognition of Equatorial’s title.
- The presumption that execution of a public instrument equals delivery was negated by the actual facts: Mayfair’s possession and continuing objection prevented consummation of delivery.
Reasoning: Bad Faith and Forfeiture of Benefits
- The Court reiterated its mother‑case finding that Equatorial was a purchaser in bad faith, having bought with notice of Mayfair’s lease and right of first refusal. The mother case characterized the sale as rescissible because Equatorial and Carmelo acted to Mayfair’s prejudice.
- Because Equatorial acted in bad faith, equitable or restitutionary benefits (such as interest or rentals as civil fruits) are denied; Equatorial is entitled only to return of the purchase price under the mother case ruling.
Procedural Reasoning: Motion to Dismiss and Res Judicata
- Mayfair’s motion to dismiss raised forum‑shopping and an asserted bar by prior judgment. The RTC dismissed the complaint on the basis that the sale was rescinded and “void,” but the Supreme Court held that the dispositive, correct ground supporting dismissal is res judicata: the mother case finally resolved the ownership and related entitlement issues, barring relitigation.
- Under res judicata, a final judgment on the merits by a competent court conclusively settles matters between the same parties on the same cause; the Court found the elements satisfied and affirmed dismissal accordingly.
Final Disposition and Costs
The Supreme Court denied Equatorial’s petition and affirmed the dismissal of Civil Case No. 97‑85141. Costs were imposed on the petitioner.
Concurring Opinion (Justice Melo) — Summary of Key Points
Justice Melo concurred, emphasizing (1) agreement with the majority result and the need to prevent rewarding bad faith;
...continue readingCase Syllabus (G.R. No. 208284)
Procedural Posture and Relief Sought
- Petition for Review under Rule 45 of the Rules of Court (G.R. No. 133879) seeking reversal of the Regional Trial Court (RTC), Manila, Branch 8, Order dated March 11, 1998 dismissing Civil Case No. 97-85141 and the RTC Order of May 29, 1998 denying petitioner’s Motion for Reconsideration.
- The dispositive portion of the assailed RTC Order: “WHEREFORE, the motion to dismiss filed by defendant Mayfair is hereby GRANTED, and the complaint filed by plaintiff Equatorial is hereby DISMISSED.”
- The petition is rooted in long‑running litigation which includes an earlier en banc Decision of this Court, Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., G.R. No. 106063, promulgated November 21, 1996 (the “mother case”), and later litigation including G.R. No. 136221 (May 12, 2000) addressing execution issues.
- Case was originally assigned to the Second Division, later transferred to the Third Division, and ultimately referred to the Court en banc for final resolution.
Core Facts (as found in the records and prior decisions)
- Original owner: Carmelo & Bauermann, Inc. (“Carmelo”) owned a parcel of land and two two‑storey buildings along Claro M. Recto Avenue, Manila, covered by TCT No. 18529.
- Mayfair’s leases:
- June 1, 1967 lease: a portion of the second floor and mezzanine (about 1,610 sq. m.) used as Maxim Theater; 20‑year term.
- March 31, 1969 lease: another portion of the second floor (about 1,064 sq. m.), two store spaces on ground and mezzanine (combined about 300 sq. m.) used as Miramar Theater; 20‑year term.
- Both leases contained a right of first refusal in favor of Mayfair should Carmelo sell the property.
- Sale to Equatorial:
- Carmelo sold the subject properties to Equatorial for P11,300,000 in 1978 (the record refers both to July 30, 1978 and July 31, 1978 in different parts of the source).
- The sale was made without offering the property first to Mayfair despite the contractual right of first refusal.
- Litigation timeline and outcomes leading to this petition:
- Mayfair filed suit for annulment of the Deed of Absolute Sale, specific performance, and damages; RTC (Branch 7) initially ruled for Carmelo and Equatorial; Court of Appeals reversed; matter elevated to this Court in G.R. No. 106063.
- In the mother case (G.R. No. 106063, Nov. 21, 1996) this Court denied Equatorial’s petition for review, deemed the Deed of Absolute Sale rescinded, ordered return of the purchase price to Equatorial, directed deeds and documents to effect return of ownership to Carmelo, and ordered Carmelo to allow Mayfair to buy the lots for P11,300,000. That decision became final and executory on March 17, 1997.
- Execution complications: Carmelo could not be located. Mayfair filed a Motion for Execution (Apr. 25, 1997) and, following the trial court’s order of execution, deposited P11,300,000 less P847,000 withholding tax with the clerk of court for payment to Carmelo. The sheriff executed a Deed of Reconveyance in favor of Carmelo and a Deed of Sale in favor of Mayfair; the Register of Deeds cancelled Equatorial’s titles and issued new TCTs in Mayfair’s name (TCT Nos. 235120–235123).
- Appellate intervention (CA Resolution Nov. 20, 1998) stated Mayfair had no right to deduct the P847,000 withholding tax and ordered deposit of that sum with the clerk to complete P11,300,000 for turnover to Equatorial; that ruling was contested by Equatorial in G.R. No. 136221.
- This Court later (May 12, 2000, in G.R. No. 136221) directed strict compliance with the mother case and held that Carmelo must return the full P11,300,000 to Equatorial and that Mayfair may not deduct the P847,000 withholding tax (the duty to withhold, if any, rests with the seller, Carmelo).
- New action founding present petition:
- On September 18, 1997 Equatorial filed in RTC Manila, Branch 8 (Civil Case No. 97‑85141) an action for collection of a sum of money — claiming unpaid rentals or reasonable compensation for Mayfair’s occupation after lease expirations (alleged lease expirations: Maxim on May 31, 1987; Miramar on March 31, 1989).
- Equatorial claimed to be the owner based on the 1978 Contract/Deed of Sale and sought rentals from Mayfair’s occupation.
- Mayfair moved to dismiss on grounds of forum‑shopping and that the cause of action was barred by prior judgment.
Issues Presented (as advanced by petitioner and as framed by the Court)
- Petitioner’s articulated issues (condensed into two main questions by the Court):
- Substantive: Whether Equatorial is entitled to back rentals for Mayfair’s use and occupation of the subject premises.
- Procedural: Whether the RTC’s dismissal of Civil Case No. 97‑85141 rested on grounds raised by Mayfair’s Motion to Dismiss and whether the ground used was one permitted under Rule 16 of the Rules of Court.
- Additional specific contentions of Equatorial (quoted and summarized in the petition): that the RTC disregarded legal concepts on rescission and its legal effects, misapplied the mother case’s dispositive portion, incorrectly held the Deed of Absolute Sale “void at its inception,” and erred in holding rescission did not leave petitioner with any vested or residual proprietary rights (including rents).
Holding (Court en banc)
- Petition denied. The petition for review (G.R. No. 133879) is DENIED and costs are imposed against petitioner.
- The RTC’s grant of Mayfair’s Motion to Dismiss is upheld — not for the precise legal reason the trial court stated, but on sounder grounds articulated by this Court:
- Equatorial never acquired ownership of the properties under the peculiar facts of this controversy because there was a patent failure of delivery; hence Equatorial cannot claim the civil fruit of ownership (rentals).
- Alternatively and cumulatively, even if delivery had been effective, Equatorial’s bad faith precludes entitlement to the civil fruits (rentals, interest) as adjudicated in the mother case.
- Res judicata: petitioner’s cause of action for back rentals is barred by the prior final judgment in G.R. No. 106063.
Court’s Reasoning — Ownership, Delivery, and Civil Fruits
- Foundational legal propositions cited (as stated in the source):
- A contract of sale obliges transfer of ownership and delivery (Art. 1458 Civ. Code: sale defined).
- Ownership is a real right acquired only upon delivery/tradition (Arts. 712, 1164, 1496 and related commentary): “ownership of the thing sold is not acquired by mere agreement, but by tradition or delivery.”
- Delivery may be actual or constructive (Arts. 1497–1498 and jurisprudence); execution of a public instrument is prima facie equivalent to delivery but is a legal fiction that yields to reality when there is a legally effective impediment to actual delivery.
- Rent is a civil fruit of ownership (Art. 442 third paragraph; Art. 441 par. (3)). Civil fruits belong to the owner by right of accession (Art. 440).
- Article 1164: “The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has been delivered to him.”
- Article 1385: rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest.
- Application to the present facts:
- Equatorial never took actual control and possession of the property sold because Mayfair timely objected and maintaine