De Leon vs. Ong

A notarized deed of absolute sale that conveys property in an absolute and irrevocable manner, where the buyer’s obligation to assume the seller’s mortgage pertains only to the manner of payment and not to the transfer of ownership, is a contract of sale and not a contract to sell. The execution of a public instrument is equivalent to delivery; thus, ownership passes upon perfection of the contract. In a double sale of immovable property where neither buyer registered the sale, ownership belongs to the first buyer in good faith who took possession. Even if a suspensive condition were present, Article 1186 of the Civil Code deems it fulfilled when the obligor voluntarily prevents its fulfillment.

Petitioner Raymundo S. De Leon owned three parcels of land in Antipolo, Rizal, encumbered by a mortgage to Real Savings and Loan Association, Inc. (RSLAI). On March 10, 1993, he and respondent Benita T. Ong executed a notarized deed of absolute sale with assumption of mortgage for a total price of ₱1.1 million. Respondent paid ₱415,500 upon execution and undertook to assume the outstanding loan. Petitioner delivered the keys and authorized RSLAI to accept payment from respondent and release the certificates of title. Respondent took possession and made improvements. Shortly thereafter, petitioner, without respondent’s knowledge, paid the entire loan, retrieved the titles, and sold the same properties to a third party, Leona Viloria.

• Execution of the Notarized Deed: On March 10, 1993, petitioner and respondent executed a notarized deed of absolute sale with assumption of mortgage covering three parcels of land with improvements in Antipolo, Rizal. The deed stated that petitioner sold the properties “in a manner absolute and irrevocable” for ₱1.1 million. Respondent was to pay ₱415,500 upon execution and assume petitioner’s outstanding loan with RSLAI (stated as ₱684,500, though the actual balance was ₱715,250 as of April 1, 1993) without any further cost.

• Delivery of Possession and Notification to Lender: Petitioner received the partial payment of ₱415,500, handed the keys to respondent, and wrote RSLAI informing it of the sale and authorizing it to accept payment from respondent and release the certificates of title to her.

• Respondent’s Acts of Ownership: Respondent undertook repairs and improvements on the properties — she had the house painted and repaired, and the premises cleaned and landscaped. She also informed RSLAI of the assumption of mortgage and underwent the credit investigation required by the lender.

• Petitioner’s Secret Payment and Second Sale: Subsequently, without notice to respondent, petitioner paid his entire outstanding obligation to RSLAI and retrieved the certificates of title. He then sold the same properties to Leona Viloria and changed the locks, rendering the keys given to respondent useless.

• Respondent’s Discovery and Demand: Upon learning of the lock change, respondent went to RSLAI and discovered that petitioner had already settled the loan and taken back the titles. Her repeated efforts to contact petitioner were futile, prompting her to file suit on June 18, 1993.

• Nature of the Contract: Petitioner argued that the deed was a contract to sell subject to a positive suspensive condition — the approval by RSLAI of respondent’s assumption of mortgage. Because respondent failed to obtain RSLAI’s approval, the condition never materialized; consequently, the sale was never perfected, and petitioner retained ownership and could freely dispose of the properties.

• Lack of Cause of Action and Damages: Petitioner maintained that respondent had no cause of action against him and prayed for the dismissal of the complaint. He further counterclaimed for damages, asserting that the complaint was filed with gross and evident bad faith.

• Nature of the Contract: Respondent asserted that the parties entered into a contract of absolute sale. The deed’s language conveyed ownership outright, and the assumption of mortgage was merely a mode of payment. The perfection of the sale and the transfer of ownership were not dependent on RSLAI’s approval.

• Invalidity of the Second Sale: Respondent contended that because ownership had already passed to her on March 10, 1993, petitioner no longer owned the properties when he sold them to Viloria; thus, the second sale was void and petitioner fraudulently deprived her of the properties.

• Nature of the Contract: Whether the March 10, 1993 deed constituted a contract of sale or a contract to sell.

• Double Sale and Ownership: Whether the sale to Viloria was void or gave rise to a double sale, and who between respondent and Viloria acquired valid ownership of the properties.

• Nature of the Contract: The deed was a contract of sale, not a contract to sell. In a contract of sale, ownership passes upon perfection; non-payment of the price is a negative resolutory condition. The notarized deed employed absolute and irrevocable language and contained no stipulation reserving ownership until full payment. The terms and conditions pertained solely to the manner of payment, not to the perfection of the contract or the transfer of ownership. Under Article 1498 of the Civil Code, the execution of a notarized deed of sale is equivalent to delivery. Combined with the handing over of the keys and the written authorization to RSLAI, petitioner’s acts demonstrated an unqualified transfer of ownership. Even assuming arguendo that the assumption of mortgage was a suspensive condition, Article 1186 deems a condition fulfilled when the obligor voluntarily prevents its fulfillment. Petitioner prevented fulfillment by secretly paying the loan and retrieving the titles without notifying respondent.

• Double Sale and Ownership: The second sale to Viloria was not void; it constituted a valid double sale. Under Article 1544 of the Civil Code, when immovable property is sold to different vendees, ownership belongs to the first buyer in good faith who registered the sale; absent registration, to the first in possession in good faith; and absent possession, to the one with the oldest title in good faith. Neither respondent nor Viloria registered the sale. Respondent was a purchaser in good faith — she knew only of the RSLAI mortgage, undertook to assume it, and had no notice of any other claim or interest. Petitioner’s act of secretly paying the loan rendered respondent’s obligation to assume the mortgage impossible without her fault; under Article 1266, she was released from that obligation. For purposes of good faith, she is deemed to have fully complied with the condition of payment. Respondent took prior possession via the notarized deed and delivery of keys, and exercised acts of ownership through repairs and improvements. Consequently, she is the lawful owner of the properties. To avoid unjust enrichment, respondent must still pay the balance of the purchase price in the amount stated in the deed.

• Contract of Sale vs. Contract to Sell — In a contract of sale, ownership is conveyed upon perfection; non-payment of the price is a resolutory condition that entitles the seller to sue for collection or seek judicial rescission. In a contract to sell, ownership is retained by the seller until full payment of the price; default by the buyer entitles the seller only to damages. A deed that conveys property “in a manner absolute and irrevocable” without reserving ownership until full payment is a contract of sale, not a contract to sell.

• Delivery by Public Instrument (Art. 1498, Civil Code) — The execution of a notarized deed of sale is equivalent to the delivery of the thing sold, absent any contrary stipulation or clear inference from the deed. Together with the delivery of keys, it constitutes actual delivery that vests ownership in the buyer.

• Constructive Fulfillment of Condition (Art. 1186, Civil Code) — A suspensive condition is deemed fulfilled when the obligor voluntarily prevents its fulfillment. Where a seller surreptitiously pays off the mortgage that the buyer was to assume, the seller cannot invoke the non-occurrence of the assumption as a defense to the sale.

• Release by Impossibility (Art. 1266, Civil Code) — A debtor in an obligation to do is released when the prestation becomes legally or physically impossible without the debtor’s fault. The impossibility of performing the obligation to assume a mortgage caused by the obligor’s own act discharges the debtor and does not operate to defeat the debtor’s rights under the principal contract.

• Double Sale — Preference of First Possessor in Good Faith (Art. 1544, Civil Code) — In a double sale of immovable property, ownership transfers to the first buyer who in good faith records the sale in the Registry of Property; absent registration, to the first in possession in good faith; and absent possession, to the one with the oldest title in good faith. A purchaser in good faith is one who buys the property without notice of another person’s right or interest and pays a full and fair price before receiving such notice.

• “In a contract of sale, the seller conveys ownership of the property to the buyer upon the perfection of the contract. … On the other hand, a contract to sell is subject to a positive suspensive condition. The buyer does not acquire ownership of the property until he fully pays the purchase price.” — Sets the controlling distinction that resolved the principal issue.

• “Nothing in said instrument implied that petitioner reserved ownership of the properties until the full payment of the purchase price. … the terms and conditions of the deed only affected the manner of payment, not the immediate transfer of ownership.” — Core ratio in classifying the deed as a contract of sale.

• “The execution of a notarized deed of sale is equivalent to the delivery of a thing sold.” — Reiteration of Article 1498, crucial to establishing that delivery and ownership had passed to respondent.

• “A purchaser in good faith is one who buys the property of another without notice that some other person has a right to, or an interest in, such property and pays a full and fair price for the same at the time of such purchase, or before he has notice of some other person’s claim or interest in the property.” — Defines the standard of good faith applied to respondent.

• Dijamco v. Court of Appeals, G.R. No. 113665, 7 October 2004, 440 SCRA 190 — Followed for the definitive distinction between a contract of sale and a contract to sell; used to frame the issue and underpin the ruling that the deed was a sale.

• Centeno v. Spouses Viray, 440 Phil. 881 (2002) — Followed for the definition of a purchaser in good faith; applied to find that respondent satisfied the requisites of good faith in a double sale scenario.

• Delfin v. Lagon, G.R. No. 132262, 15 September 2006, 502 SCRA 24 — Cited for the fundamental concept that a double sale arises when the same property is sold validly on two separate occasions to two different buyers.

• Article 1370, Civil Code — Literal meaning of stipulations controls when the terms of a contract are clear and leave no doubt as to the parties’ intention. Applied to construe the deed according to its plain, absolute language, without importing any reservation of ownership.

• Article 1495, Civil Code — The vendor is bound to transfer ownership of and deliver the thing sold. Used to underscore petitioner’s obligation, which was fully discharged upon execution of the notarized deed and delivery of keys.

• Article 1498, Civil Code — The execution of a sale through a public instrument is equivalent to delivery, unless the contrary appears or is clearly inferred from the deed. Applied to hold that constructive delivery occurred upon execution of the notarized deed, vesting ownership in respondent.

• Article 1186, Civil Code — A condition is deemed fulfilled when the obligor voluntarily prevents its fulfillment. Applied to treat the condition of assumption of mortgage as fulfilled because petitioner secretly paid the loan and retrieved the titles.

• Article 1266, Civil Code — The debtor in an obligation to do is released when the prestation becomes legally or physically impossible without the debtor’s fault. Applied to release respondent from the obligation to assume the mortgage, as petitioner’s act made it impossible.

• Article 1544, Civil Code — Double sale rule for immovable property. Applied to award ownership to respondent as the first possessor in good faith, neither sale having been registered.

Associate Justices Antonio T. Carpio, Presbitero J. Velasco, Jr., Antonio Eduardo B. Nachura, and Diosdado M. Peralta concurred. No separate concurring opinions were issued.