Philippine Suburban Development Corporation vs. The Auditor General

Ownership of real property sold through a public instrument passes to the vendee upon the execution of the deed, which is equivalent to delivery, unless the contrary appears from the deed itself. Registration under the Torrens System is not necessary to make the sale valid and effective as between the parties, as actual notice is equivalent to registration. The payment of the purchase price is not a condition precedent to the transfer of title in the absence of an express stipulation to the contrary.

The petitioner, Philippine Suburban Development Corporation, was the owner of two parcels of land within the Sapang Palay Estate in Sta. Maria, Bulacan. The Government Service Insurance System and the People's Homesite and Housing Corporation (PHHC), a government-owned corporation, were involved in a national project to acquire land for relocating squatters and flood victims. The project was to be financed through the flotation of bonds under the charter of the PHHC, to be absorbed by the Government Service Insurance System.

On June 8, 1960, the President of the Philippines, acting on reports of a committee created to survey suitable lots for relocating squatters, approved in principle the acquisition by the People's Homesite and Housing Corporation (PHHC) of the unoccupied portion of the Sapang Palay Estate in Sta. Maria, Bulacan. The project was to be financed through the flotation of bonds under the PHHC charter in the amount of P4.5 million, to be absorbed by the Government Service Insurance System (GSIS). On June 10, 1960, the PHHC Board of Directors passed Resolution No. 700 authorizing the purchase of the unoccupied portion of the estate at P0.45 per square meter, subject to conditions precedent including the confirmation of the purchase price by the Office of the Executive Secretary (OEC) and the President, the definition of the portion to be acquired, the provision of funds, the approval of the contract by the Auditor General, and the dismissal with prejudice of a civil case. On July 13, 1960, the President authorized the floating of bonds under Republic Act Nos. 1000 and 1322 in the amount of P7,500,000.00 to finance the acquisition of the entire Sapang Palay Estate.

As early as the first week of June 1960, prior to the signing of the deed, the PHHC acquired possession of the property with the petitioner's consent to proceed with the construction of roads and to resettle squatters and flood victims. On December 29, 1960, the petitioner and the PHHC entered into a contract embodied in a public instrument entitled "Deed of Absolute Sale" whereby the petitioner conveyed the two parcels of land for P3,386,223.00. The payment terms included a first payment of P1,710,000.00 to be retained by the vendee to clear existing liens, a trust fund of P40,000.00 for a Notice of Lis Pendens, and the remaining balance of P1,676,223.00 to be paid within sixty days from the date of delivery of title in the name of the vendee. The document was not registered until March 14, 1961, due to the PHHC's inability to advance registration expenses.

The Auditor General, to whom a copy of the contract had been submitted for approval, expressed objections and requested a re-examination in view of the reassessment of the property from P131,590.00 to P4,898,110.00. Notwithstanding these objections, the President approved the Deed of Absolute Sale on February 1, 1961. On April 12, 1961, the Provincial Treasurer of Bulacan requested the PHHC to withhold P30,099.79 from the purchase price, representing the realty tax due for the calendar year 1961. The petitioner, through the PHHC, paid the amount under protest and requested a refund, claiming it ceased to be the owner upon the execution of the deed on December 29, 1960. The Secretary of Finance denied the request, and the Auditor General disallowed the refund.

• Transmission of Ownership: Petitioner argued that aside from the presumptive delivery of the property by the execution of the deed of sale on December 29, 1960, possession of the property was actually delivered to the vendee prior to the sale, and therefore, by the transmission of ownership to the vendee, petitioner ceased to be the owner and was under no obligation to pay the real property tax for 1961.
• Constructive Delivery: Petitioner cited Article 1498 of the New Civil Code, which provides that when the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, and Article 1496, which states that ownership is acquired by the vendee from the moment it is delivered to him in any of the ways specified in Articles 1497 to 1501.

• Non-Applicability of Presumptive Delivery: Respondent argued that the presumptive delivery under Article 1498 of the Civil Code does not apply because of the requirement in the contract that the sale shall first be approved by the Auditor General and later by the President, and that the petitioner should register the deed and secure a new title in the name of the vendee before the government can be compelled to pay the balance of the purchase price.
• Torrens System Registration: Respondent contended that since the property is registered under the Land Registration Act (Act No. 496), until the deed of sale has been actually registered, the vendor remains the owner of the property and is therefore liable for the payment of real property tax.

• Necessity of Auditor General's Approval: Whether the prior approval of the Auditor General was necessary for the contract of sale entered into to implement a Presidential directive.
• Transmission of Ownership: Whether ownership of the property passed to the vendee upon the execution of the deed of absolute sale and actual delivery of possession, notwithstanding the absence of registration.
• Liability for Real Property Tax: Whether the petitioner, as vendor, remained liable for the real property tax for 1961 after the sale had been consummated.

• Necessity of Auditor General's Approval: No. The prior approval by the Auditor General envisioned by Administrative Order No. 290 was not necessary because the contract was for a special purpose, to meet a special situation, and was entered into in implementation of a Presidential directive. Where the contract already bears the approval of the President, the action of the Auditor General would no longer be necessary.
• Transmission of Ownership: Yes. Ownership passed to the vendee upon the execution of the deed of absolute sale in a public instrument, which is equivalent to delivery, and the actual delivery of possession to the vendee prior to the sale consummated the transfer of title. Registration is not necessary to make the sale valid and effective as between the parties.
• Liability for Real Property Tax: No. Since the delivery of possession, coupled with the execution of the Deed of Absolute Sale, had consummated the sale and transferred the title to the purchaser, the payment of the real estate tax after such transfer is the responsibility of the purchaser, who is a government entity not subject to real property tax.

• Necessity of Auditor General's Approval: The Court relied on the ruling in Federation of the United NAMARCO Distributors vs. National Marketing Corporation, which held that the approval by the Auditor General contemplated by Administrative Order No. 290 refers to contracts in general, ordinarily entered into by government offices and government-owned or controlled corporations, and not to a contract for a special purpose, to meet a special situation, and entered into in implementation of a Presidential directive to solve an emergency. The President had already approved the specific transaction, and under the said Administrative Order, the President has the final say.
• Transmission of Ownership: The Court explained that under the civil law, delivery (tradition) as a mode of transmission of ownership may be actual (real tradition) or constructive (constructive tradition). When the sale of real property is made in a public instrument, the execution thereof is equivalent to the delivery of the thing object of the contract, unless from the deed the contrary appears or can be clearly inferred. In this case, there was no question that the vendor had actually placed the vendee in possession and control over the thing sold, even before the date of the sale. The condition that the petitioner should first register the deed and secure a new title before the vendee pays the balance did not preclude the transmission of ownership, as the payment of the purchase price is not a condition precedent to the transfer of title in the absence of an express stipulation to the contrary.
• Liability for Real Property Tax: The Court rejected the respondent's insistence that the vendor remains the owner until the deed is registered, citing the long line of cases holding that, as between the parties to a contract of sale, registration is not necessary to make it valid and effective, for actual notice is equivalent to registration. Section 50 of the Land Registration Act provides that, even without the act of registration, a deed purporting to convey or affect registered land shall operate as a contract between the parties. The registration is intended to protect the buyer against claims of third persons arising from subsequent alienations by the vendor, and is not necessary to give effect to the deed of sale as between the parties. The case of Vargas vs. Tancioco, cited by respondent, was distinguished as involving conflicting rights over registered property and those of innocent transferees, which is not relevant to the case at bar. Since no rights of third persons were involved and the property was in the possession of the vendee as early as the first week of June 1960, the sale was consummated and title transferred to the purchaser. The purchaser, PHHC, being a government entity, was not subject to real property tax.

• Constructive Delivery (Traditio Symbolica) — When the sale of real property is made in a public instrument, the execution thereof is equivalent to the delivery of the thing object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred. The Court applied this doctrine to hold that the execution of the Deed of Absolute Sale on December 29, 1960, constituted symbolic delivery of the property, and this was reinforced by the actual delivery of possession to the vendee prior to the sale.
• Registration Not Necessary Between Parties — As between the parties to a contract of sale, registration is not necessary to make it valid and effective, for actual notice is equivalent to registration. The Court applied this doctrine to hold that the vendor's failure to register the deed did not prevent the transmission of ownership to the vendee, as registration is intended to protect the buyer against claims of third persons, not to give effect to the deed as between the parties.
• Payment of Purchase Price Not a Condition Precedent — In the absence of an express stipulation to the contrary, the payment of the purchase price of the goods is not a condition precedent to the transfer of title to the buyer; title passes by the delivery of the goods. The Court applied this to reject the argument that the vendor remained owner until the balance of the purchase price was paid.

• "When the sale of real property is made in a public instrument, the execution thereof is equivalent to the delivery of the thing object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred." — This passage articulates the doctrine of constructive delivery (traditio symbolica) under Articles 1496 and 1498 of the Civil Code, which was central to the Court's ruling that ownership passed to the vendee upon execution of the deed.
• "In a long line of cases already decided by this Court, the constant doctrine has been that, as between the parties to a contract of sale, registration is not necessary to make it valid and effective, for actual notice is equivalent to registration." — This passage states the controlling doctrine that registration under the Torrens System is not required to effect a transfer of ownership between the parties themselves, which was the basis for rejecting the respondent's argument.
• "Since the delivery of possession, coupled with the execution of the Deed of Absolute Sale, had consummated the sale and transferred the title to the purchaser, We, therefore, hold that the payment of the real estate tax after such transfer is the responsibility of the purchaser." — This passage states the ratio decidendi of the case, linking the consummation of the sale to the liability for real property tax.

• Federation of the United NAMARCO Distributors vs. National Marketing Corporation, 4 SCRA 867 — Controlling precedent on the interpretation of Administrative Order No. 290, holding that the Auditor General's approval is not necessary for contracts entered into in implementation of a Presidential directive to meet a special situation.
• Vargas vs. Tancioco, 67 Phil. 308 — Distinguished by the Court as involving conflicting rights over registered property and those of innocent transferees, and therefore not relevant to a case where no rights of third persons are involved.
• Obras Pias vs. Deverra Ignacio, 17 Phil. 45; Gustilo vs. Maravilla, 48 Phil. 442; Quimson vs. Suarez, 45 Phil. 901; Winkleman vs. Veluz, 43 Phil. 609; Galasinao vs. Austria, 97 Phil. 82 — Cited as the long line of cases establishing the doctrine that registration is not necessary to make a sale valid and effective as between the parties.
• Ocejo Perez & Co. vs. International Bank, 37 Phil. 631 — Cited for the principle that payment of the purchase price is not a condition precedent to the transfer of title in the absence of an express stipulation to the contrary.
• Republic vs. Aricheta, 2 SCRA 469 — Cited for the proposition that the PHHC, as a government entity, is not subject to real property tax.

• Article 1496, Civil Code of the Philippines — Provides that the ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any of the ways specified in Articles 1497 to 1501, or in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee. The Court applied this to hold that ownership passed to the vendee upon delivery.
• Article 1498, Civil Code of the Philippines — Provides that when the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred. The Court applied this to establish constructive delivery of the property.
• Section 50, Land Registration Act (Act No. 496) — Provides that even without the act of registration, a deed purporting to convey or affect registered land shall operate as a contract between the parties. The Court cited this to show that registration is not necessary to give effect to the deed as between the parties.
• Section 7, Republic Act No. 1322 — States that all the projects of the People's Homesite and Housing Corporation financed under this act shall be exempt from national and local taxes and fees of any kind. The Court cited this to support the conclusion that the PHHC, as the purchaser, was not subject to real property tax.
• Administrative Order No. 290, dated February 3, 1959 — Requires the approval of the Auditor General for contracts entered into by government offices and government-owned or controlled corporations. The Court held this approval was not necessary for a contract entered into in implementation of a Presidential directive.

Chief Justice Makalintal, and Justices Fernando, Barredo, and Aquino concurred in the decision.