Escueta vs. Lim

A contract that does not contain a stipulation reserving ownership in the vendor until full payment of the price is a contract of sale, not a contract to sell; ownership is transferred upon delivery of the thing sold. Additionally, acceptance and encashment of a check representing earnest money or down payment constitutes ratification of an agent’s otherwise unenforceable contract, curing any defect in authority.

Rufina Lim purchased the hereditary shares of Ignacio Rubio and the Heirs of Luz Baloloy in ten lots covered by two transfer certificates of title. A contract of sale dated April 10, 1990 was executed, and down payments were made. Under the agreement, the vendors would secure individual certificates of title to their respective shares, and the balance of the purchase price would be paid upon presentation of each certificate. Ignacio Rubio and the Baloloys later refused to deliver their certificates of title and resisted the sale. Rubio thereafter sold his share to his daughter, Corazon Escueta, through a deed that Lim alleged was simulated. Lim filed an action to quiet title and for specific performance, precipitating the litigation.

• The Subject Properties: The dispute involved the hereditary shares of Ignacio E. Rubio and the Heirs of Luz R. Baloloy in ten lots covered by TCT No. 74392 and TCT No. 74394. The properties were registered in common, not in the individual names of the heirs.

• The First Sale to Rufina Lim: On April 10, 1990, a contract of sale was executed by Ignacio Rubio and the Heirs of Luz Baloloy in favor of respondent Rufina Lim. The contract covered their respective hereditary shares for a price certain. Lim paid earnest money or down payment in the amounts of ₱102,169.86 to Rubio and ₱450,000 to the Baloloys. It was agreed that the vendors would secure individual certificates of title to their shares and that the balance of the purchase price would be paid upon presentation of those certificates, free from liens and encumbrances.

• Rubio’s Subsequent Refusal and Second Sale: Ignacio Rubio refused to receive the other half of the down payment and refused to deliver the certificates of title covering his share. Rubio claimed that the ₱100,000 he received was a loan, not a down payment. Without seeking rescission of the April 10, 1990 contract, Rubio executed a deed of sale over his hereditary share in favor of his daughter, petitioner Corazon L. Escueta. This second sale was undertaken despite Escueta’s knowledge of the prior sale to Lim.

• The Baloloys’ Withdrawal: The Heirs of Luz Baloloy also refused to deliver their certificates of title and claimed they had withdrawn their offer to sell because Lim had allegedly failed to pay the balance of the purchase price as promised on or before May 1, 1990.

• Lim’s Readiness: Respondent was at all times ready and willing to pay the balance of the purchase price upon presentation of the individual certificates of title.

• Procedural Default of the Baloloys: The Baloloys failed to appear at pre-trial. The trial court declared them in default and subsequently rendered a partial decision against them, ordering execution of an absolute deed of sale upon payment or consignation of the balance, and awarding moral damages and attorney’s fees.

• Petition for Relief: The Baloloys filed a petition for relief from judgment. They argued that Bayani Baloloy was in the United States and had not been notified of the pre-trial, and that Alejandrino Baloloy lacked a power of attorney to represent Bayani. The trial court denied the petition, finding it was filed beyond the 60-day period and lacked proof of fraud, accident, mistake, or excusable negligence. The records showed that their former counsel received a copy of the partial decision on April 5, 1994, and the petition for relief was filed only on July 4, 1994. Moreover, the Baloloys themselves received the partial decision on September 13, 1993, as evidenced by registry return cards signed by Alejandrino Baloloy.

• Timeliness and Grounds for the Petition for Relief: Petitioners argued that the Court of Appeals erred in denying their petition for relief from judgment. They invoked fraud, accident, and excusable neglect, contending that Bayani Baloloy was in the United States and was neither served with notice of pre-trial nor informed by his former counsel. They further argued that the order declaring him in default was void for lack of a special power of attorney authorizing Alejandrino Baloloy to represent Bayani at the pre-trial conference.

• Rubio Not Bound by the Contract: Petitioner Ignacio Rubio maintained that he was not bound by the contract of sale because Virginia Rubio Laygo Lim, who represented him and signed the contract with respondent, was not his authorized agent. The Special Power of Attorney he executed was in favor of his daughter Patricia Llamas, who was not empowered to designate a substitute. Llamas allegedly disowned her signature on the Joint Special Power of Attorney that constituted Virginia as attorney-in-fact. Petitioners insisted that the amount encashed by Rubio represented repayment of a debt, not a down payment, and could not amount to ratification.

• The Contract is a Contract to Sell, Not a Contract of Sale: Petitioners characterized the instrument as a contract to sell, arguing that the real intention of the parties was to reserve ownership pending full payment of the purchase price, taxes, and fees—conditions precedent they considered necessary to perfect the sale.

• Lim’s Non-Compliance and Escueta’s Good Faith: Petitioner Corazon Escueta argued that respondent failed to faithfully fulfill her obligations, entitling Rubio to sell his properties to her. She claimed she exercised due diligence in ascertaining ownership and was a buyer in good faith who need not inquire beyond the Torrens title.

• Dismissal of Counterclaims: Petitioners sought reversal of the dismissal of their counterclaims.

• Validity of the Sale: Respondent maintained that a binding contract of sale was perfected on April 10, 1990, and that ownership had been transferred to her through actual and constructive delivery. She asserted that the contract contained no reservation of title and that her obligation to pay the balance was merely suspended until the vendors delivered their individual certificates of title.

• Breach by Petitioners: She contended that the vendors breached the contract by refusing to deliver the certificates of title; consequently, she was entitled to specific performance.

• Nullity of the Second Sale: Respondent argued that the sale between Rubio and Escueta was simulated or, at the very least, void because Rubio had already sold his share to her. She claimed Escueta knew of the prior sale and thus was not a purchaser in good faith.

• Petition for Relief: Whether the Court of Appeals erred in denying the Baloloys’ petition for relief from judgment.

• Agency and Authority: Whether Ignacio Rubio was bound by the contract of sale executed by Virginia Lim on his behalf.

• Nature of the Contract: Whether the agreement between the parties was a contract of sale or a contract to sell.

• Rescission and Right to Sell: Whether respondent’s alleged non-compliance justified Rubio’s cancellation of the contract and subsequent sale to Escueta.

• Validity of the Second Sale: Whether the contract of sale between Ignacio Rubio and Corazon Escueta was valid.

• Petition for Relief: The denial of the petition for relief was affirmed. The 60-day period to file a petition for relief under Section 3 of Rule 38 is reckoned from the time the party acquired knowledge of the order or judgment. The Baloloys’ former counsel received the partial decision on April 5, 1994; the petition for relief was filed only on July 4, 1994, or 90 days later. Moreover, no fraud, accident, mistake, or excusable negligence was proven. The notice of pre-trial was served on both the Baloloys and their counsel of record. An admission in a party’s pleading is conclusive and dispenses with the need for proof; the Baloloys admitted their personal circumstances in their answer, and Bayani Baloloy was properly declared in default for lack of representation.

• Agency and Authority: Ignacio Rubio ratified the contract of sale and was bound by it. Under Article 1892 of the Civil Code, an agent may appoint a substitute if not prohibited, and Patricia Llamas acted within her authority when she authorized Virginia Lim. Even assuming Virginia Lim lacked authority, the contract was merely unenforceable under Article 1317 and was susceptible to ratification. Rubio’s acceptance and encashment of the check representing the down payment constituted implied ratification, producing the effects of an express power of agency and confirming the sale.

• Nature of the Contract: The agreement was a contract of sale, not a contract to sell. All elements of a valid contract of sale under Article 1458 were present: consent, determinate subject matter, and a price certain. Earnest money was given, which under Article 1482 is considered proof of the perfection of the contract. The contract contained no stipulation reserving ownership in the vendor until full payment of the price. Under Article 1477, ownership is transferred to the vendee upon actual or constructive delivery. Delivery was effected through respondent’s possession and the execution of the contract itself.

• Rescission and Right to Sell: Rubio could no longer sell the property to Escueta. In a contract of sale, the vendor loses ownership over the property and cannot recover it until and unless the contract is resolved or rescinded. The records showed that Rubio never sought judicial or notarial rescission before selling to Escueta. Under Article 1592, a vendee may still pay even after the expiration of the period so long as no demand for rescission has been made. The vendors’ own failure to deliver their individual certificates of title meant respondent could not be expected to pay the stipulated taxes, fees, and expenses.

• Validity of the Second Sale: The sale between Rubio and Escueta was declared null and void. Applying Article 1544 on double sales, a second buyer who has actual or constructive knowledge of a defect in the seller’s title cannot be a registrant in good faith and cannot defeat the first buyer’s title. Escueta had knowledge of the prior sale to Lim. A perusal of the certificates of title alone revealed that the properties were registered in common, not in the individual names of the heirs, undermining the claim of good faith reliance on the Torrens title.

• Ratification of Unauthorized Agency — The acceptance and encashment of a check received as down payment for a sale constitutes implied ratification of an agent’s otherwise unenforceable contract, curing any defect in the agent’s authority. Ratification produces the effects of an express power of agency.

• Contract of Sale vs. Contract to Sell — In a contract of sale, title passes to the vendee upon delivery; in a contract to sell, ownership is reserved in the vendor until full payment of the purchase price. The absence of an express stipulation reserving title indicates a contract of sale. The giving of earnest money under Article 1482 of the Civil Code is proof of the perfection of the sale.

• Perfection and Consummation of Sale — A contract of sale is perfected upon a meeting of the minds on the thing and the price. Ownership is transferred upon actual or constructive delivery thereof. Execution of a public instrument is equivalent to constructive delivery.

• Rescission of Sale of Immovable Property — Under Article 1592 of the Civil Code, even when a stipulation provides for automatic rescission upon failure to pay the price at the agreed time, the vendee may still pay after the expiration of the period so long as no demand for rescission has been made judicially or by notarial act.

• Double Sale; Good Faith Purchaser — Under Article 1544 of the Civil Code, a second buyer with actual or constructive knowledge of a prior sale cannot be deemed a purchaser in good faith and cannot defeat the first buyer’s title. A buyer who merely relies on a Torrens title without further inquiry, where the certificates reveal a defect, does not satisfy the standard of good faith.

• Petition for Relief; Reglementary Period — The 60-day period to file a petition for relief from judgment under Rule 38, Section 3 of the Rules of Court is reckoned from the time the party acquires knowledge of the judgment, not from the date of actual reading.

• Admissions in Pleadings — An admission, verbal or written, made by a party in the course of the same proceedings, does not require proof, is conclusive as to that party, and cannot be controverted.

• “The real character of the contract is not the title given, but the intention of the parties. x x x [N]ot only has the title to the subject properties passed to the latter upon delivery of the thing sold, but there is also no stipulation in the contract that states the ownership is to be reserved in or retained by the vendor until full payment of the price.”

• “His acceptance and encashment of the check, however, constitute ratification of the contract of sale and produce the effects of an express power of agency. His action necessarily implies that he waived his right of action to avoid the contract, and, consequently, it also implies the tacit, if not express, confirmation of the said sale.”

• “In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act.”

• “The doctrine of estoppel applicable to petitioners here is not only that which prohibits a party from assuming inconsistent positions, based on the principle of election, but that which precludes him from repudiating an obligation voluntarily assumed after having accepted benefits therefrom.”

• Dignos v. CA, G.R. No. 59266, February 29, 1988 — Followed for the elements of a valid contract of sale and the principle that ownership is transferred upon actual or constructive delivery.

• Salazar v. CA, 327 Phil. 944 (1996) — Distinguished a contract of sale from a contract to sell; relied on for the rule that the absence of a stipulation reserving title indicates a contract of sale.

• Adelfa Properties, Inc. v. CA, 310 Phil. 623 (1995) — Applied for the definition of earnest money as proof of perfection of the contract and as part of the purchase price.

• Coronel v. CA, 331 Phil. 294 (1996) — Cited on the application of Article 1544 on double sales, and the right of a first buyer to seek reconveyance.

• Saura Import & Export Co., Inc. v. Solidum, 133 Phil. 505 (1968) — Applied on the doctrine of estoppel precluding a party from repudiating an obligation after voluntarily accepting its benefits.

• Serona v. CA, 440 Phil. 508 (2002) — Relied on for the principle that an agent may appoint a substitute if not prohibited, but remains responsible for the substitute’s acts.

• Article 1317, Civil Code — Applied to classify the contract executed by the unauthorised agent as unenforceable rather than void, and subject to ratification.

• Article 1458, Civil Code — Provided the definition and essential elements of a contract of sale, all of which were present.

• Article 1475, Civil Code — Applied to determine that the contract was perfected upon the meeting of minds on the object and price.

• Article 1477, Civil Code — Applied to hold that ownership passed to the vendee upon delivery.

• Article 1482, Civil Code — Applied to treat the earnest money as proof of the perfection of the sale.

• Article 1544, Civil Code — Applied on the rule of double sale, defeating the subsequent buyer with knowledge of the first sale.

• Article 1592, Civil Code — Applied to bar the vendor from unilaterally rescinding the contract and selling to another absent a judicial or notarial demand for rescission.

• Article 1892, Civil Code — Applied to validate the agent’s appointment of a substitute, holding the original agent responsible but the transaction binding.

• Rule 18, Sections 2 and 3, Rules of Court — Applied to affirm the mandatory nature of pre-trial and the duty of counsel to notify the client.

• Rule 38, Section 3, Rules of Court — Applied to deny the petition for relief for failure to file within the 60-day reglementary period.

• Rule 129, Section 4, Rules of Court — Applied to render the party’s own admission conclusive and dispense with proof.

Chief Justice Reynato S. Puno (Chairperson), Justice Angelina Sandoval-Gutierrez, Justice Renato C. Corona, Justice Cancio C. Garcia — all concurred without separate opinions.