Case Summary (G.R. No. 153820)
Petitioner’s Claim
Tan sought either rescission and return of his P200,000 down payment or reformation of the contract to permit payment of the balance only after the lapse of a two-year annotation on the title. He asserted that an annotation placed pursuant to Section 4, Rule 74 of the Rules of Court constituted an encumbrance that prevented the vendors from delivering a clean title and justified his refusal to pay the balance.
Respondents’ Position and Procedural Objections
Respondents enforced the contract’s forfeiture clause after Tan failed to pay the balance within extensions granted. They challenged the lis pendens annotation placed by Tan and sought cancellation of the lis pendens on the ground that Tan’s action was in personam and thus not an action affecting title or possession. They also contended that the petition raised primarily questions of fact not reviewable under Rule 45.
Key Dates and Procedural History
- Deed of Conditional Sale executed: October 6, 1992; down payment made by Metrobank check for P200,000.
- Death of co-owner Lamberto Benolirao: November 6, 1992.
- Extrajudicial settlement and issuance of new TCT No. 27335: settlement on January 20, 1993; new title issued March 26, 1993 with Section 4, Rule 74 annotation.
- Extended payment deadlines and demand letters culminating in complaint filed June 19, 1993; amended complaint August 9, 1993.
- RTC judgment (favoring respondents) dated September 8, 1995; CA affirmed on May 30, 2002; petition for review under Rule 45 filed and decided by the Supreme Court in the present decision.
Applicable Law (constitutional basis and principal rules applied)
Governing constitutional framework: 1987 Philippine Constitution (applicable to decisions from 1990 onward). Principal statutory and procedural authorities applied: Rules of Court (Section 4, Rule 74; Section 14, Rule 13; Rule 45 procedural constraints on issues on review), Civil Code provisions on sale and contracts (contract of sale, contract to sell; Articles discussed in the decision), and pertinent Supreme Court jurisprudence interpreting contracts to sell, lis pendens, and the effects of annotations under Rule 74.
Disregarded New Issues in Memorandum
The Court adhered to its rule that no new issues may be raised in a memorandum filed before the Supreme Court. Two additional assignments of error raised by Tan in his Memorandum were disregarded as irregular, since memoranda must support issues already presented in the petition and not introduce new theories or arguments.
Character of the Issue and Reviewability
The Supreme Court treated the principal question—whether an annotation under Section 4, Rule 74 on a certificate of title is an encumbrance that affects the buyer’s obligation to pay—as a pure question of law, properly cognizable under a Rule 45 petition for certiorari.
Lis Pendens: Scope and Inappropriateness for Personal Actions
Under Section 14, Rule 13 of the Rules of Court, a notice of lis pendens may be recorded only in actions affecting title or right of possession of real property. The Court found Tan’s complaint to be an in personam action seeking relief against the respondents (rescission, return of down payment, or reformation of contract) rather than an in rem action asserting title or possession against the property itself. As such, the lis pendens annotation placed by Tan did not satisfy the statutory requirement and its cancellation by the RTC was proper.
Nature of the Contract: Contract to Sell, Not an Absolute Sale
The Court analyzed the Deed of Conditional Sale and concluded its true nature was a contract to sell rather than an absolute conditional sale. The contract expressly provided that upon full compliance the sellers would execute and deliver a Deed of Absolute Sale, which jurisprudence treats as a reserving of title in the vendor until full payment. Under a contract to sell, ownership remains with the vendor until the purchase price is paid in full, and non-payment operates as a positive suspensive condition rather than a breach subject to rescission under Article 1191.
Section 4, Rule 74 Annotation as an Encumbrance on Title
The Court held that the annotation placed on TCT No. 27335 pursuant to Section 4, Rule 74 creates a legal encumbrance or lien on the property in favor of excluded heirs or creditors for two years following distribution. Such annotation is intended to warn third parties of possible claims and legally charges the land with liability during that period. The presence of the annotation means the vendors could not promise or deliver a clean title free of potential claims within that two-year period.
Effect of the Annotation on Tan’s Obligation to Pay and Forfeiture Clause
Because the annotation attached before Tan’s obligation to pay the remaining balance fell due, the vendors could not have legally conveyed a clean title when the payment was demanded. The buyer’s refusal to pay under those circumstances was not due to his own fault or negligence but was justified by the supervening legal encumbrance. Consequently, forfeiture of the down payment pursuant to the contract’s forfeiture clause was unwarranted: the contract to sell was terminated rather than rescinded, and the vendor’s retention of the down payment could not be sustained.
Termination versus Rescission of a Contract to Sell
Relying on established doctrine distinguishing contracts to sell from absolute sales, the Court held that remedies premised on Article 1191 (rescission) do not apply to contracts to sell because title remains with the vendor until full paymen
...continue readingCase Syllabus (G.R. No. 153820)
Case Caption, Decision and Question Presented
- G.R. No. 153820; Second Division decision dated October 16, 2009; opinion penned by Justice Brion with Quisumbing (Chairperson), Carpio-Morales, Nachura, and Abad, JJ., concurring.
- Central legal question: Whether an annotation made pursuant to Section 4, Rule 74 of the Rules of Court on a certificate of title covering real property is considered an encumbrance on the property.
- Relief sought by petitioner Delfin Tan (Tan): review on certiorari of the Court of Appeals decision in CA-G.R. CV No. 52033 and of the Regional Trial Court decision declaring proper the forfeiture of Tan’s P200,000.00 down payment under the parties’ contract.
Antecedent Facts (Undisputed)
- Parties and property:
- Co-owners: Spouses Lamberto and Erlinda Benolirao and Spouses Reynaldo and Norma Taningco owned a 689-square meter parcel in Tagaytay City covered by TCT No. 26423.
- Contract and payment:
- On October 6, 1992, the co-owners executed a Deed of Conditional Sale in favor of Delfin Tan for P1,378,000.00.
- Terms stated in the deed included:
- Initial down payment: P200,000.00 upon signing (paid by Metrobank Check No. 904407).
- Remaining balance: P1,178,000.00 payable within 150 days (initial maturity: March 15, 1993).
- Sixty-day grace period with 15% p.a. interest if buyer failed to pay within 150 days.
- Forfeiture clause: if buyer failed to comply within the grace period, sellers had the right to forfeit down payment and rescind the sale without judicial action.
- Provision that upon buyer’s compliance sellers shall execute and deliver a Deed of Absolute Sale.
- Death, extrajudicial settlement and new title:
- Lamberto Benolirao died intestate on November 6, 1992.
- On January 20, 1993, Erlinda and Lamberto’s heirs executed an extrajudicial settlement; a new title, TCT No. 27335, issued March 26, 1993 in the names of Spouses Reynaldo and Norma Taningco and Erlinda Benolirao and her children.
- Annotation placed on TCT No. 27335 pursuant to Section 4, Rule 74: it warned of “any liability to credirots, excluded heirs and other persons having right to the property, for a period of two (2) years, with respect only to the share of Erlinda, Andrew, Romano and Dion, all surnamed Benolirao.”
- Extensions, demand and refusal to pay:
- By agreement the payment period was extended by two months to May 15, 1993; Tan asked for another extension but still failed to pay by May 21, 1993.
- Vendors sent a demand to Tan giving five days to pay or they would rescind and forfeit the down payment; Tan refused.
- Tan sent a letter dated May 28, 1993 claiming the Section 4, Rule 74 annotation constituted an encumbrance that prevented delivery of a clean title and demanded the return of his down payment.
- Demand for refund reiterated June 18, 1993 through counsel; vendors refused.
Procedural History
- June 19, 1993: Tan filed a complaint in the RTC of Pasay City for specific performance and alternatively for rescission and refund or reformation of the contract; he alleged a novation without consent due to the annotation and prayed for rescission or reformation.
- August 9, 1993: Tan amended complaint, offering that he would pay the balance if the contract were reformed.
- Tan caused a notice of lis pendens to be annotated on the title.
- August 21, 1993: Respondents executed a Deed of Absolute Sale to Hector de Guzman for P689,000.00; de Guzman registered the property and obtained TCT No. 28104.
- Respondents moved to cancel lis pendens arguing the action was personal in nature; RTC granted the motion on October 22, 1993 and cancelled the lis pendens annotation.
- Tan moved to carry over the lis pendens to the new title (TCT No. 28104); RTC denied the motion.
- September 8, 1995: RTC rendered judgment ruling the forfeiture of Tan’s P200,000.00 down payment proper under the contract; ordered Tan to pay respondents P30,000.00 plus P1,000.00 per court appearance as attorney’s fees and costs.
- Court of Appeals dismissed Tan’s appeal and affirmed the RTC decision in toto (decision dated May 30, 2002 in CA-G.R. CV No. 52033).
- Tan filed petition for review on certiorari under Rule 45 before the Supreme Court.
Issues Presented by Petitioner and Respondents’ Contentions
- Petitioner’s main arguments:
- The Court of Appeals erred in affirming cancellation of the lis pendens on TCT No. 27335.
- The annotation pursuant to Section 4, Rule 74 transformed the parties’ contract relationship such that Tan could not be compelled to pay the balance absent delivery of a “clean” title; therefore forfeiture clause should not operate.
- Alternative remedies alleged in complaint included rescission and refund or reformation of the contract to defer payment until the two-year annotation/lien period expired.
- Forfeiture clause applies only when buyer’s own fault/negligence causes nonpayment; Tan’s refusal was justified.
- The CA erred in awarding attorney’s fees to respondents; Tan litigated in good faith.
- Respondents’ arguments:
- Petition should be dismissed for raising pure questions of fact, which are not cognizable under Rule 45.
Court’s Preliminary Procedural Rulings (On New Issues in Memorandum)
- The Supreme Court noted that Tan raised additional assignments of error in his Memorandum (relating to conditions for seeking reformation and estoppel) which contravened a prior Court resolution (September 27, 2004) that prohibits raising new issues in the memorandum.
- The Court reiterated the rule that new issues, theories or points of law may not be raised in the memorandum because such practice denies fair opportunity to the opposing parties.
- The Court disregarded these additional assignments and confined its consideration to issues properly advanced in the petition and memorandum.
Characterization of the Issue as Question of Law
- The Court held the central issue—whether a Section 4, Rule 74 annotation is an encumbrance on the property—constituted a pure question of law and was therefore properly cognizable under Rule 45 despite respondents’ contention to the contrary.
Nature of Lis Pendens and Its Applicability to the Case
- The Court examined Section 14, Rule 13 (notice of lis pendens) and quoted its text governing when a notice of lis pendens may be recorded: in actions affecting title or right of possession of real property, with constru