Title
Escueta vs. Lim
Case
G.R. No. 137162
Decision Date
Jan 24, 2007
Rufina Lim sued to enforce a valid contract of sale for disputed properties, upheld by courts, with damages awarded due to sellers' refusal to comply.
contract of sale
validity
obligations

Case Summary (G.R. No. 137162)

Factual Background

Respondent filed an action to remove cloud on title, or quiet title to, certain real property, with preliminary injunction and a request for a hold-departure order against Ignacio E. Rubio, and later amended her complaint to include specific performance and damages. She alleged that she purchased hereditary shares consisting of ten lots from Ignacio E. Rubio and the heirs of Luz R. Baloloy, that vendors executed a contract of sale dated April 10, 1990, and that the vendors received down payments—P102,169.86 from Rubio and P450,000 from the Baloloys. She alleged an agreement that vendors would secure individual certificates of title and that the balance of the purchase price would be paid upon presentation of those titles. She averred further that Rubio and the Baloloys refused to deliver their certificates of title and that Rubio later effected a simulated deed of sale in favor of Corazon L. Escueta, thus clouding her title.

Defenses and Counterclaims

In separate amended answers petitioners denied the material allegations. The Baloloys asserted that the contract of sale had lost force because respondent failed to pay the balance as orally promised on or before May 1, 1990, and that they had withdrawn their offer. Ignacio E. Rubio and Corazon L. Escueta maintained that Rubio did not enter into the contract with respondent, that Rubio had appointed Patricia Llamas as attorney-in-fact—not Virginia Rubio Laygo Lim (who represented Rubio in the sale to respondent)—and that the P100,000 claimed by respondent as a down payment was in truth a loan transaction with Lim. Petitioners asserted a right to rescind and alleged that Escueta acted in good faith in purchasing from Rubio.

Pretrial Default of the Baloloys and Partial Decision

The Baloloys failed to appear at pretrial and, upon respondent’s motion, the trial court declared them in default. Their subsequent motion to lift the default was denied on November 27, 1991, and respondent was permitted to present evidence ex parte. The trial court rendered a partial decision dated July 23, 1993, which adjudicated against Alejandrino and Bayani Baloloy. The court ordered them to execute absolute deeds of sale over their hereditary shares after payment by respondent of P1,050,000 or consignation, and, failing their execution, directed the Clerk of Court to execute deeds on their behalf for a consideration of P1,500,000. The court also awarded moral damages and attorneys’ fees against them and ordered the cancellation of adverse claims annotated on the relevant Torrens certificates of title.

Proceedings on the Merits and Trial Court Final Decision

Proceedings on the merits continued between respondent and Rubio and Escueta. The trial court thereafter rendered a separate decision which dismissed the complaint and amended complaint against Escueta, Rubio, and the Register of Deeds. The court also dismissed petitioners’ counterclaim but ordered Ignacio E. Rubio to return P102,169.80 to respondent with six percent interest from April 10, 1990 until paid. The trial court thus split relief between the parties and denied respondent’s principal claims against Rubio and Escueta.

Court of Appeals Disposition

On appeal, the Court of Appeals affirmed the trial court’s order and partial decision against the Baloloys but reversed the trial court’s final decision dismissing respondent’s complaint insofar as Rubio and Escueta were concerned. The CA upheld the validity of the contract of sale in favor of respondent, directed Rubio to execute a Deed of Absolute Sale conditioned upon payment of the balance within thirty days, declared the contracts of sale between Rubio and Escueta null and void, and ordered Rubio and Escueta to pay respondent moral damages and attorneys’ fees. The CA dismissed the appeal by Rubio and Escueta on their denial of the counterclaim.

Issues Presented in the Petition

Petitioners raised four principal issues: (I) whether the CA erred in denying the Baloloys’ petition for relief from judgment; (II) whether the CA erred in reinstating the complaint and awarding moral damages and attorneys’ fees to respondent given contentions that Rubio was not bound by any contract of sale with respondent, that the agreement between respondent and Virginia Lim was a contract to sell rather than a contract of sale, that respondent failed to perform, and that Escueta acted in good faith; (III) whether the contract of sale between Rubio and Escueta was valid; and (IV) whether the CA erred in dismissing petitioners’ counterclaims.

Petitioners’ Principal Contentions on the Merits

Petitioners argued that the Baloloys’ default was caused by fraud, accident, or excusable neglect because Bayani was in the United States and lacked service of notice, and because Alejandrino lacked authority to represent Bayani. They argued further that Rubio did not authorize Virginia Lim to transact on his behalf, that the special power of attorney appointed Patricia Llamas and did not authorize substitution in favor of Lim, and that any acceptance of respondent’s check constituted a loan, not a down payment. Petitioners maintained that the document between Virginia and respondent was a contract to sell that reserved ownership until full payment, that respondent breached obligations, and that Rubio properly sold to Escueta. They insisted Escueta acted in good faith and that counterclaims were erroneously dismissed.

Court’s Assessment of the Baloloys’ Default and Petition for Relief

The Court accepted the appellate court’s treatment that the Baloloys made factual admissions in their pleadings which dispensed with the need to present evidence to contradict those admissions. The Court observed that pretrial is mandatory and that notices had been sent to the Baloloys and their then counsel; counsel was charged with the duty to notify his clients. The Court applied Rule 38, Sec. 3 and held that the Baloloys failed to file their petition for relief within the sixty-day period after learning of the partial decision. The Court found no proof of extrinsic fraud, accident, mistake, or excusable negligence that would justify relief from judgment under the rule. Consequently, the CA did not err in denying the Baloloys’ petition for relief from judgment.

Agency, Ratification, and the Validity of the Contract in Favor of Respondent

Addressing the contention that Virginia lacked authority, the Court applied Article 1892 of the Civil Code to conclude that an agent may appoint a substitute unless prohibited, and that Patricia Llamas, as attorney-in-fact, was not shown to have prohibited substitution. The Court held that by authorizing Virginia to sell the properties, Patricia acted within her authority though she remained responsible for the acts of the sub-agent. The Court further held that even if Virginia acted without authority, the contract she executed on behalf of Rubio was not void but unenforceable under Article 1317, and that Rubio’s acceptance and encashment of respondent’s check constituted ratification of the sale and produced the effects of an express power of agency. The Court found Rubio’s contrary claim that the payment was a loan to be unsubstantiated and insufficient to avoid ratification.

Estoppel, Delivery, and Perfection of Sale

The Court found that the Baloloys likewise had accepted and enjoyed benefits of the agreement and thus were estopped from repudiating the sale. Applying Article 1475 and related Civil Code provisions, the Court concluded that the elements of a valid contract of sale under Article 1458 were present: meeting of minds, determinate subject matter, and a price certain. The Court treated the earnest money paid by respondent as part of the price and proof of perfection of the contract under Article 1482, and it held that ownership passed upon actual or constructive delivery under Article 1477. The Court observed actual delivery by respondent’s possession and use of the lots, and noted that nothing in the contract reserved ownership in the vendor until full payment.

Rejection of the Argument that Torrens Registration Excused Inquiry and Vendor’s Default in Delivering Titles

The Court rejected petitioners’ contention that a purch

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