Heirs of Severina San Miguel vs. Court of Appeals

A vendor cannot compel the vendee to pay the purchase price for a property the vendor has no title or proof of ownership to transfer, and an impossible condition annexed to the contract is void, leaving the principal obligation to deliver the title for the fully paid property enforceable.

Severina San Miguel owned a 632-square-meter parcel of land in Panapan, Bacoor, Cavite. Dominador San Miguel subdivided it without her knowledge into three lots and obtained an original certificate of title in his favor. Severina filed a petition for review alleging fraudulent concealment, which resulted in the nullification of Dominador's title and the issuance of Transfer Certificate of Title No. T-223511 in Severina's name. Writs of possession and demolition were subsequently issued in her favor but remained unsatisfied.

• The Land and the Fraud: Severina San Miguel owned a 632-square-meter land in Bacoor, Cavite. Dominador San Miguel subdivided it without her knowledge into three lots (LRC Psu-1312, LRC Psu-1313 Lot 1, and LRC Psu-1313 Lot 2) and obtained title in his name. Severina filed a petition for review alleging fraudulent concealment. The court nullified Dominador's title and issued Transfer Certificate of Title No. T-223511 in Severina's name.
• The Writs: Writs of possession (1990) and demolition (1991) were issued in Severina's favor but remained unsatisfied.
• The Compromise and Sale: On August 6, 1993, Severina's heirs (Lapina) and Dominador's heirs (San Miguel) entered into a kasunduan (compromise agreement). They agreed to sell Lots 1 and 2 for P1,500,000.00, and Lot 3 for P300,000.00. The kasunduan stipulated that San Miguel recognized Lapina as the true owners of Lot 3, that Lapina had no liability for its titling or third-party claims, and that the owner's copy of TCT No. T-223511 (covering Lots 1 and 2) would only be delivered upon payment of the P300,000.00 for Lot 3. A kasulatan sa bilihan ng lupa (deed of sale) was also executed the same day.
• The Breach: Dominador, et al. paid the P1,500,000.00 for Lots 1 and 2 but did not pay the P300,000.00 for Lot 3. They reasoned that Severina's heirs had not presented any proof of ownership over Lot 3, which was declared for tax purposes in the name of a third party, Emiliano Eugenio. Dominador, et al. moved for the delivery of the title to Lots 1 and 2. Severina's heirs opposed, citing the condition in the kasunduan requiring prior payment for Lot 3.

• Effect of Kasunduan: Petitioners argued that the Court of Appeals erred in holding that the kasunduan had no effect on the kasulatan sa bilihan ng lupa.
• Prior Obligations: Petitioners maintained that the surrender of the certificate of title was conditioned upon respondents' payment of the P300,000.00 stipulated in the kasunduan, and non-compliance justified withholding the title.
• Fraud and Bad Faith: Petitioners contended that the kasunduan was null and void for having been entered into by respondents fraudulently and in bad faith.

• Lack of Proof of Ownership: Respondents countered that non-payment of the P300,000.00 was justified because petitioners had not presented any proof of ownership over the untitled parcel (LRC Psu-1312), which was declared for tax purposes in the name of a third party, Emiliano Eugenio.
• Deferral of Compliance: Respondents argued that compliance with the kasunduan should be deferred until petitioners could produce proof of ownership over the parcel.

• Validity of the Condition: Whether respondents may be compelled to pay the P300,000.00 as agreed upon in the kasunduan as a prerequisite for the release of the certificate of title, despite petitioners' lack of evidence of ownership over the parcel covered by LRC Psu-1312.

• Validity of the Condition: Respondents cannot be compelled to pay the P300,000.00. The essence of a sale is the transfer of ownership. While a vendor need not possess title at perfection, the vendor must be able to transfer title at the time of delivery. Petitioners lacked proof of ownership over LRC Psu-1312, as a tax declaration existed in a third party's name. Insisting on payment would result in unjust enrichment. The stipulation requiring payment for Lot 3 as a condition for delivering the title to Lots 1 and 2 is an impossible condition under Art. 1183 of the Civil Code, as the vendors cannot transfer ownership of Lot 3. The impossible condition is void, but the divisible obligation regarding the fully paid Lots 1 and 2 remains valid and enforceable. Therefore, petitioners must surrender the title to Lots 1 and 2.

• Freedom to Contract / Mandatory Law — The contracting parties may establish stipulations provided they are not contrary to law, morals, good customs, public order, or public policy. The law is deemed written into every contract, limiting and governing the relations between the parties.
• Obligation of the Vendor in a Contract of Sale — The vendor must have the right to transfer ownership of the thing sold at the time of delivery. Title passes to the vendee upon full payment or delivery. If the vendor cannot deliver the object, the contract may be deemed inoperative or inexistent under Art. 1405(5) of the Civil Code (impossible service).
• Impossible Conditions — Impossible conditions, those contrary to good customs or public policy, and those prohibited by law annul the obligation which depends upon them. If the obligation is divisible, the part not affected by the impossible condition remains valid.
• Unjust Enrichment — No one shall unjustly enrich himself at the expense of another. Requiring payment for a property the vendor cannot transfer ownership to results in unjust enrichment.

• "It is basic that the law is deemed written into every contract. Although a contract is the law between the parties, the provisions of positive law which regulate contracts are deemed written therein and shall limit and govern the relations between the parties."
• "True, in contracts of sale, the vendor need not possess title to the thing sold at the perfection of the contract. However, the vendor must possess title and must be able to transfer title at the time of delivery."
• "Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them. If the obligation is divisible, that part thereof which is not affected by the impossible or unlawful condition shall be valid..."

• Nool v. Court of Appeals, 276 SCRA 149 (1997) — Followed. If sellers cannot deliver the object of the sale, the contract may be deemed inoperative or fall under Art. 1405(5) (inexistent contracts - impossible service).
• Pisuena v. Heirs of Petra Unating, 313 SCRA 493 (1999) — Cited for the principle that a vendor need not own the thing at perfection, but if they later acquire title, it passes by operation of law to the buyer.
• Valarao v. Court of Appeals, 363 Phil. 495 (1999) — Cited for the rule that title passes to the vendee upon full payment or delivery.
• Serna v. Court of Appeals, 308 SCRA 527 (1999) — Cited for the rule that tax declarations are strong evidence of ownership when accompanied by possession for a period sufficient for prescription.

• Article 1306, Civil Code — Allows contracting parties to establish stipulations provided they are not contrary to law, morals, good customs, public order, or public policy. Applied to emphasize that positive law limits contractual freedom.
• Article 1458, Civil Code — Defines the contract of sale, obligating the vendor to transfer ownership. Applied to establish the essence of the sale.
• Article 1459, Civil Code — Requires the thing sold to be licit and the vendor to have the right to transfer ownership at the time of delivery. Applied to show petitioners' inability to transfer title over Lot 3.
• Article 1495, Civil Code — Obligates the vendor to transfer ownership, deliver, and warrant the thing sold. Applied in conjunction with Arts. 1458 and 1459.
• Article 1405(5), Civil Code — Declares contracts contemplating an impossible service inexistent and void from the beginning. Applied by analogy to the sale of Lot 3.
• Article 1183, Civil Code — Provides that impossible conditions annul the obligation depending upon them, but if the obligation is divisible, the unaffected part remains valid. Applied to sever the impossible condition (payment for Lot 3) from the valid sale of Lots 1 and 2.
• Article 2154, Civil Code — Defines unjust enrichment. Applied to preclude petitioners from demanding payment for a lot they could not transfer.

Davide, Jr., C.J., Puno, Kapunan, and Ynares-Santiago, JJ.