Punsalan, Jr. vs. Vda. de Lacsamana

An action for annulment or rescission of a sale of real property is a real action that must be commenced and tried in the province where the property lies, notwithstanding that the plaintiff styles the action as one for damages or validity of the deed rather than for recovery of title or possession.

Petitioner Antonio Punsalan, Jr. was the former registered owner of a 340-square-meter parcel of land in Bamban, Tarlac, which he mortgaged to the Philippine National Bank (PNB) Tarlac Branch in 1963 for ₱10,000.00. After default, the property was foreclosed on December 16, 1970, with PNB as the highest bidder, although the bank secured title only on December 14, 1977. While the property remained in Punsalan's possession and with PNB's alleged acquiescence, Punsalan constructed a warehouse on the land in 1974, declared it for tax purposes, and leased it to a third party for ten years. PNB subsequently sold the property to respondent Remedios Vda. de Lacsamana on July 26, 1978, and amended the deed on July 31, 1978, to include the building and improvements thereon.

Petitioner Antonio Punsalan, Jr. was the former registered owner of a 340-square-meter parcel of land in Bamban, Tarlac. In 1963, he mortgaged the land to PNB (Tarlac Branch) for ₱10,000.00. Upon his failure to pay, the property was foreclosed on December 16, 1970, with PNB as the highest bidder, although the bank secured title to the land only on December 14, 1977.

While the property was still in Punsalan's alleged possession and with PNB's alleged acquiescence, Punsalan secured a permit from the Municipal Mayor and constructed a warehouse on the land in 1974. He declared the warehouse for tax purposes under Tax Declaration No. 5619 and leased it to one Hermogenes Sibal for a period of ten years beginning January 1975. On July 26, 1978, PNB executed a Deed of Sale over the property in favor of respondent Remedios Vda. de Lacsamana. This contract was amended on July 31, 1978, to include the building and improvements thereon. By virtue of these instruments, Lacsamana secured title over the property in her name under TCT No. 173744 and obtained separate tax declarations for the land and the building.

On November 22, 1979, Punsalan filed a complaint for "Annulment of Deed of Sale with Damages" against PNB and Lacsamana before the Court of First Instance of Rizal, Branch XXXI, Quezon City. He alleged that PNB had sold the building to Lacsamana through the Amended Deed of Sale notwithstanding that the bank had never owned the building, as the sheriff's certificate of sale in the foreclosure proceedings was limited to the land. He further alleged that PNB fraudulently included the building in the sale despite full knowledge that it had never become PNB's property, thereby violating the principle against pactum commissorium. He prayed that the Deed of Sale of the building be declared null and void and that damages in the total sum of approximately ₱230,000.00 be awarded.

Lacsamana filed her Answer on March 4, 1980, raising the affirmative defense of lack of cause of action, asserting she was a purchaser for value and invoking the principle that "the accessory follows the principal." On March 14, 1980, PNB filed a Motion to Dismiss on the ground of improper venue, contending that the building was real property under Article 415(1) of the New Civil Code and that Section 2(a) of Rule 4 should govern venue. Punsalan opposed the motion, arguing that the action was personal in nature, seeking not recovery of title or possession but payment of damages. The lower court granted PNB's motion on April 25, 1980, dismissing the complaint for improper venue. Punsalan's Motion for Reconsideration was denied on September 1, 1980. He then filed a Motion to Set Case for Pre-trial as to Lacsamana, arguing that the issues had been joined with the filing of her Answer and that she had not raised improper venue. The lower court denied this motion on November 10, 1980, on the ground that the case had already been dismissed.

• Nature of the Action: Petitioner contended that the action for annulment of deed of sale with damages is in the nature of a personal action, which seeks to recover not the title nor possession of the property but to compel payment of damages, and is therefore not an action affecting title to real property.
• Proceeding Against Lacsamana Alone: Petitioner maintained that the case should proceed with respect to respondent Lacsamana, as she had already filed her Answer to the Complaint and raised no issue on venue, so that the issues had already been joined and the case could proceed with or without PNB.

• Improper Venue: Respondent PNB argued that venue was improperly laid because the building in question was real property under Article 415(1) of the New Civil Code, requiring the action to be tried in the province where the property lies pursuant to Section 2(a) of Rule 4.
• Lack of Cause of Action: Respondent Lacsamana averred the affirmative defense of lack of cause of action, asserting that she was a purchaser for value and invoking the Civil Law principle that "the accessory follows the principal."

• Classification of the Action: Whether the action for annulment of deed of sale with damages involving a building is a real action requiring venue where the property lies.
• Proceeding Against a Remaining Defendant: Whether the case may proceed against respondent Lacsamana alone despite the dismissal of the case against co-respondent PNB on the ground of improper venue.

• Classification of the Action: Yes. The action is a real action affecting title to real property, and venue was improperly laid in Quezon City, the warehouse being immovable property under Article 415(1) of the Civil Code.
• Proceeding Against a Remaining Defendant: No. PNB is an indispensable party because the validity of the Amended Contract of Sale between PNB and Lacsamana is directly in issue, making it futile to proceed against Lacsamana alone.

• Classification of the Action: The warehouse claimed by petitioner is immovable or real property under Article 415(1) of the Civil Code, which classifies land, buildings, roads, and constructions of all kinds adhered to the soil as immovable. Buildings are always immovable under the Code, and the mere fact that the parties to a contract dealt with the building separately from the land does not change its character as immovable property. While petitioner does not directly seek recovery of title or possession, his action for annulment of sale and claim for damages are closely intertwined with the issue of ownership of the building, the recovery of which is his primary objective. The prevalent doctrine is that an action for annulment or rescission of a sale of real property does not efface the fundamental nature of the case as a real action to recover said real property. Venue was therefore improperly laid, and the ground was timely raised under Section 1, Rule 16 of the Rules of Court.
• Proceeding Against a Remaining Defendant: PNB is an indispensable party to the action because the validity of the Amended Contract of Sale executed between PNB and Lacsamana is the very subject of the dispute. Without PNB's presence, any adjudication on the validity of that contract would be incomplete and ineffectual. It would be futile to proceed with the case against Lacsamana alone, as the core issue — the validity of PNB's sale of the building — cannot be resolved without PNB as a party.

• Buildings as Immovable Property — Under Article 415(1) of the Civil Code, buildings are always immovable property, regardless of whether they are treated separately from the land on which they stand. The mere fact that parties to a contract deal with a building apart from the land does not change its character as immovable property. The Court relied on this principle to classify the warehouse as real property, thereby triggering the venue rules for real actions.
• Real Action vs. Personal Action for Venue Purposes — An action for annulment or rescission of a sale of real property is a real action, even if the plaintiff does not directly seek recovery of title or possession but instead claims damages. The action's primary objective — recovery of the real property — determines its nature, not the form in which the plaintiff casts his prayer. Real actions affecting title to real property must be commenced and tried in the province where the property lies under Section 2, Rule 4 of the Rules of Court.
• Indispensable Party — A party whose interest in the subject matter of the suit is such that a final adjudication cannot be made without their presence is an indispensable party. Where the validity of a contract between two defendants is in issue, the vendor defendant is indispensable, and the case cannot proceed against the vendee defendant alone.

• "While it is true that petitioner does not directly seek the recovery of title or possession of the property in question, his action for annulment of sale and his claim for damages are closely intertwined with the issue of ownership of the building which, under the law, is considered immovable property, the recovery of which is petitioner's primary objective." — This passage articulates the ratio decidendi: the nature of an action is determined by its primary objective, not by the form of the prayer, and an action for annulment of sale of real property remains a real action for venue purposes.
• "A building treated separately from the land on which it stood is immovable property and the mere fact that the parties to a contract seem to have dealt with it separate and apart from the land on which it stood in no wise changed its character as immovable property." — This defines the canonical rule on the immovable character of buildings regardless of contractual treatment, relying on Leung Yee vs. Strong Machinery Co.
• "The prevalent doctrine is that an action for the annulment or rescission of a sale of real property does not operate to efface the fundamental and prime objective and nature of the case, which is to recover said real property. It is a real action." — This states the controlling doctrine on classification of actions for venue, frequently cited in subsequent jurisprudence on real vs. personal actions.

• Leung Yee vs. Strong Machinery Co., 37 Phil. 644 (1918) — Cited as controlling authority for the proposition that a building treated separately from the land on which it stands remains immovable property, and that contractual treatment of a building apart from the land does not change its character as immovable.
• Gavieres vs. Sanchez, et al., 94 Phil. 760 (1954) — Cited as supporting authority for the doctrine that an action for annulment or rescission of a sale of real property is a real action.
• Torres vs. J.M. Tuason & Co., 12 SCRA 174 (1964) — Cited as supporting authority for the classification of actions involving real property as real actions.
• De Jesus vs. Coloso, 1 SCRA 272 (1961) — Cited as supporting authority for the same doctrine on real actions and venue.

• Article 415(1), Civil Code — Defines immovable property to include land, buildings, roads, and constructions of all kinds adhered to the soil. Applied to classify the warehouse as immovable property, thereby triggering the venue rule for real actions.
• Section 2, Rule 4, Rules of Court — Provides that actions affecting title to, or for recovery of possession or for partition or condemnation of, or foreclosure of mortgage on, real property shall be commenced and tried in the province where the property or any part thereof lies. Applied to dismiss the complaint for improper venue.
• Section 1, Rule 16, Rules of Court — Provides that a motion to dismiss may be made on the ground that venue is improperly laid. Applied to confirm that PNB's Motion to Dismiss on the ground of improper venue was timely raised.

Teehankee (Chairman), Plana, Vasquez, Relova, and Gutierrez, Jr., JJ., concurred.