Equatorial Realty Dev't Inc vs Mayfair Theater Inc : 133879 : November 21, 2001 : J. Panganiban : En Banc

EN BANC

[G.R. No. 133879. November 21, 2001]

EQUATORIAL REALTY DEVELOPMENT, Inc., petitioner, vs. MAYFAIR THEATER, Inc., respondent.

D E C I S I O N

PANGANIBAN, J.:

General propositions do not decide specific cases. Rather, laws are interpreted in the context of the peculiar factual situation of each proceeding. Each case has its own flesh and blood and cannot be ruled upon on the basis of isolated clinical classroom principles.

While we agree with the general proposition that a contract of sale is valid until rescinded, it is equally true that ownership of the thing sold is not acquired by mere agreement, but by tradition or delivery. The peculiar facts of the present controversy as found by this Court in an earlier relevant Decision show that delivery was not actually effected; in fact, it was prevented by a legally effective impediment. Not having been the owner, petitioner cannot be entitled to the civil fruits of ownership like rentals of the thing sold. Furthermore, petitioner’s bad faith, as again demonstrated by the specific factual milieu of said Decision, bars the grant of such benefits. Otherwise, bad faith would be rewarded instead of punished.

The Case

Filed before this Court is a Petition for Review[1] under Rule 45 of the Rules of Court, challenging the March 11, 1998 Order[2] of the Regional Trial Court of Manila (RTC), Branch 8, in Civil Case No. 97-85141. The dispositive portion of the assailed Order reads as follows:

“WHEREFORE, the motion to dismiss filed by defendant Mayfair is hereby GRANTED, and the complaint filed by plaintiff Equatorial is hereby DISMISSED.”[3]

Also questioned is the May 29, 1998 RTC Order[4] denying petitioner’s Motion for Reconsideration.

The Facts

The main factual antecedents of the present Petition are matters of record, because it arose out of an earlier case decided by this Court on November 21, 1996, entitled Equatorial Realty Development, Inc. v. Mayfair Theater, Inc.[5] (henceforth referred to as the “mother case”), docketed as GR No. 106063.

Carmelo & Bauermann, Inc. (“Carmelo”) used to own a parcel of land, together with two 2-storey buildings constructed thereon, located at Claro M. Recto Avenue, Manila, and covered by TCT No. 18529 issued in its name by the Register of Deeds of Manila.

On June 1, 1967, Carmelo entered into a Contract of Lease with Mayfair Theater Inc. (“Mayfair”) for a period of 20 years. The lease covered a portion of the second floor and mezzanine of a two-storey building with about 1,610 square meters of floor area, which respondent used as a movie house known as Maxim Theater.

Two years later, on March 31, 1969, Mayfair entered into a second Contract of Lease with Carmelo for the lease of another portion of the latter’s property -- namely, a part of the second floor of the two-storey building, with a floor area of about 1,064 square meters; and two store spaces on the ground floor and the mezzanine, with a combined floor area of about 300 square meters. In that space, Mayfair put up another movie house known as Miramar Theater. The Contract of Lease was likewise for a period of 20 years.

Both leases contained a provision granting Mayfair a right of first refusal to purchase the subject properties. However, on July 30, 1978 - within the 20-year-lease term -- the subject properties were sold by Carmelo to Equatorial Realty Development, Inc. (“Equatorial”) for the total sum of P11,300,000, without their first being offered to Mayfair.

As a result of the sale of the subject properties to Equatorial, Mayfair filed a Complaint before the Regional Trial Court of Manila (Branch 7) for (a) the annulment of the Deed of Absolute Sale between Carmelo and Equatorial, (b) specific performance, and (c) damages. After trial on the merits, the lower court rendered a Decision in favor of Carmelo and Equatorial. This case, entitled “Mayfair Theater, Inc. v. Carmelo and Bauermann, Inc., et al.,” was docketed as Civil Case No. 118019.

On appeal (docketed as CA-GR CV No. 32918), the Court of Appeals (CA) completely reversed and set aside the judgment of the lower court.

The controversy reached this Court via GR No. 106063. In this mother case, it denied the Petition for Review in this wise:

“WHEREFORE, the petition for review of the decision of the Court of Appeals, dated June 23, 1992, in CA-G.R. CV No. 32918, is HEREBY DENIED. The Deed of Absolute Sale between petitioners Equatorial Realty Development, Inc. and Carmelo & Bauermann, Inc. is hereby deemed rescinded; Carmelo & Bauermann is ordered to return to petitioner Equatorial Realty Development the purchase price. The latter is directed to execute the deeds and documents necessary to return ownership to Carmelo & Bauermann of the disputed lots. Carmelo & Bauermann is ordered to allow Mayfair Theater, Inc. to buy the aforesaid lots for P11,300,000.00.”[6]

The foregoing Decision of this Court became final and executory on March 17, 1997. On April 25, 1997, Mayfair filed a Motion for Execution, which the trial court granted.

However, Carmelo could no longer be located. Thus, following the order of execution of the trial court, Mayfair deposited with the clerk of court a quo its payment to Carmelo in the sum of P11,300,000 less P847,000 as withholding tax. The lower court issued a Deed of Reconveyance in favor of Carmelo and a Deed of Sale in favor of Mayfair. On the basis of these documents, the Registry of Deeds of Manila cancelled Equatorial’s titles and issued new Certificates of Title[7] in the name of Mayfair.

Ruling on Equatorial’s Petition for Certiorari and Prohibition contesting the foregoing manner of execution, the CA in its Resolution of November 20, 1998, explained that Mayfair had no right to deduct the P847,000 as withholding tax. Since Carmelo could no longer be located, the appellate court ordered Mayfair to deposit the said sum with the Office of the Clerk of Court, Manila, to complete the full amount of P11,300,000 to be turned over to Equatorial.

Equatorial questioned the legality of the above CA ruling before this Court in GR No. 136221 entitled “Equatorial Realty Development, Inc. v. Mayfair Theater, Inc.” In a Decision promulgated on May 12, 2000,[8] this Court directed the trial court to follow strictly the Decision in GR No. 106063, the mother case. It explained its ruling in these words:

“We agree that Carmelo and Bauermann is obliged to return the entire amount of eleven million three hundred thousand pesos (P11,300,000.00) to Equatorial. On the other hand, Mayfair may not deduct from the purchase price the amount of eight hundred forty-seven thousand pesos (P847,000.00) as withholding tax. The duty to withhold taxes due, if any, is imposed on the seller, Carmelo and Bauermann, Inc.”[9]

Meanwhile, on September 18, 1997 -- barely five months after Mayfair had submitted its Motion for Execution before the RTC of Manila, Branch 7 -- Equatorial filed with the Regional Trial Court of Manila, Branch 8, an action for the collection of a sum of money against Mayfair, claiming payment of rentals or reasonable compensation for the defendant’s use of the subject premises after its lease contracts had expired. This action was the progenitor of the present case.

In its Complaint, Equatorial alleged among other things that the Lease Contract covering the premises occupied by Maxim Theater expired on May 31, 1987, while the Lease Contract covering the premises occupied by Miramar Theater lapsed on March 31, 1989.[10] Representing itself as the owner of the subject premises by reason of the Contract of Sale on July 30, 1978, it claimed rentals arising from Mayfair’s occupation thereof.

Ruling of the RTC Manila, Branch 8

As earlier stated, the trial court dismissed the Complaint via the herein assailed Order and denied the Motion for Reconsideration filed by Equatorial.[11]

The lower court debunked the claim of petitioner for unpaid back rentals, holding that the rescission of the Deed of Absolute Sale in the mother case did not confer on Equatorial any vested or residual proprietary rights, even in expectancy.

In granting the Motion to Dismiss, the court a quo held that the critical issue was whether Equatorial was the owner of the subject property and could thus enjoy the fruits or rentals therefrom. It declared the rescinded Deed of Absolute Sale as “void at its inception as though it did not happen.”

The trial court ratiocinated as follows:

“The meaning of rescind in the aforequoted decision is to set aside. In the case of Ocampo v. Court of Appeals, G.R. No. 97442, June 30, 1994, the Supreme Court held that, ‘to rescind is to declare a contract void in its inception and to put an end as though it never were. It is not merely to terminate it and release parties from further obligations to each other but to abrogate it from the beginning and restore parties to relative positions which they would have occupied had no contract ever been made.’

“Relative to the foregoing definition, the Deed of Absolute Sale between Equatorial and Carmelo dated July 31, 1978 is void at its inception as though it did not happen.

“The argument of Equatorial that this complaint for backrentals as ‘reasonable compensation for use of the subject property after expiration of the lease contracts presumes that the Deed of Absolute Sale dated July 30, 1978 from whence the fountain of Equatorial’s alleged property rights flows is still valid and existing.

xxx xxx xxx

“The subject Deed of Absolute Sale having been rescinded by the Supreme Court, Equatorial is not the owner and does not have any right to demand backrentals from the subject property. x x x.”[12]

The trial court added: “The Supreme Court in the Equatorial case, G.R. No. 106063, has categorically stated that the Deed of Absolute Sale dated July 31, 1978 has been rescinded subjecting the present complaint to res judicata.”[13]

Hence, the present recourse.[14]

Issues

Petitioner submits, for the consideration of this Court, the following issues:[15]

“A.

The basis of the dismissal of the Complaint by the Regional Trial Court not only disregards basic concepts and principles in the law on contracts and in civil law, especially those on rescission and its corresponding legal effects, but also ignores the dispositive portion of the Decision of the Supreme Court in G.R. No. 106063 entitled ‘Equatorial Realty Development, Inc. & Carmelo & Bauermann, Inc. vs. Mayfair Theater, Inc.’

“B.

The Regional Trial Court erred in holding that the Deed of Absolute Sale in favor of petitioner by Carmelo & Bauermann, Inc., dated July 31, 1978, over the premises used and occupied by respondent, having been ‘deemed rescinded’ by the Supreme Court in G.R. No. 106063, is ‘void at its inception as though it did not happen.’

“C.

The Regional Trial Court likewise erred in holding that the aforesaid Deed of Absolute Sale, dated July 31, 1978, having been ‘deemed rescinded’ by the Supreme Court in G.R. No. 106063, petitioner ‘is not the owner and does not have any right to demand backrentals from the subject property,’ and that the rescission of the Deed of Absolute Sale by the Supreme Court does not confer to petitioner ‘any vested right nor any residual proprietary rights even in expectancy.’

“D.

The issue upon which the Regional Trial Court dismissed the civil case, as stated in its Order of March 11, 1998, was not raised by respondent in its Motion to Dismiss.

“E.

The sole ground upon which the Regional Trial Court dismissed Civil Case No. 97-85141 is not one of the grounds of a Motion to Dismiss under Sec. 1 of Rule 16 of the 1997 Rules of Civil Procedure.”

Basically, the issues can be summarized into two: (1) the substantive issue of whether Equatorial is entitled to back rentals; and (2) the procedural issue of whether the court a quo‘s dismissal of Civil Case No. 97-85141 was based on one of the grounds raised by respondent in its Motion to Dismiss and covered by Rule 16 of the Rules of Court.

This Court’s Ruling

The Petition is not meritorious.

First Issue:

Ownership of Subject Properties

We hold that under the peculiar facts and circumstances of the case at bar, as found by this Court en banc in its Decision promulgated in 1996 in the mother case, no right of ownership was transferred from Carmelo to Equatorial in view of a patent failure to deliver the property to the buyer.

Rental - a Civil Fruit of Ownership

To better understand the peculiarity of the instant case, let us begin with some basic parameters. Rent is a civil fruit[16] that belongs to the owner of the property producing it[17] by right of accession.[18] Consequently and ordinarily, the rentals that fell due from the time of the perfection of the sale to petitioner until its rescission by final judgment should belong to the owner of the property during that period.

By a contract of sale, “one of the contracting parties obligates himself to transfer ownership of and to deliver a determinate thing and the other to pay therefor a price certain in money or its equivalent.”[19]

Ownership of the thing sold is a real right,[20] which the buyer acquires only upon delivery of the thing 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.”[21] This right is transferred, not by contract alone, but by tradition or delivery.[22] Non nudis pactis sed traditione dominia rerum transferantur. And there is said to be delivery if and when the thing sold “is placed in the control and possession of the vendee.”[23] Thus, it has been held that while the execution of a public instrument of sale is recognized by law as equivalent to the delivery of the thing sold,[24] such constructive or symbolic delivery, being merely presumptive, is deemed negated by the failure of the vendee to take actual possession of the land sold.[25]

Delivery has been described as a composite act, a thing in which both parties must join and the minds of both parties concur. It is an act by which one party parts with the title to and the possession of the property, and the other acquires the right to and the possession of the same. In its natural sense, delivery means something in addition to the delivery of property or title; it means transfer of possession.[26] In the Law on Sales, delivery may be either actual or constructive, but both forms of delivery contemplate “the absolute giving up of the control and custody of the property on the part of the vendor, and the assumption of the same by the vendee.”[27]

Possession Never Acquired by Petitioner

Let us now apply the foregoing discussion to the present issue. From the peculiar facts of this case, it is clear that petitioner never took actual control and possession of the property sold, in view of respondent’s timely objection to the sale and the continued actual possession of the property. The objection took the form of a court action impugning the sale which, as we know, was rescinded by a judgment rendered by this Court in the mother case. It has been held that the execution of a contract of sale as a form of constructive delivery is a legal fiction. It holds true only when there is no impediment that may prevent the passing of the property from the hands of the vendor into those of the vendee.[28] When there is such impediment, “fiction yields to reality - the delivery has not been effected.”[29]

Hence, respondent’s opposition to the transfer of the property by way of sale to Equatorial was a legally sufficient impediment that effectively prevented the passing of the property into the latter’s hands.

This was the same impediment contemplated in Vda. de Sarmiento v. Lesaca,[30] in which the Court held as follows:

“The question that now arises is: Is there any stipulation in the sale in question from which we can infer that the vendor did not intend to deliver outright the possession of the lands to the vendee? We find none. On the contrary, it can be clearly seen therein that the vendor intended to place the vendee in actual possession of the lands immediately as can be inferred from the stipulation that the vendee ‘takes actual possession thereof x x x with full rights to dispose, enjoy and make use thereof in such manner and form as would be most advantageous to herself.’ The possession referred to in the contract evidently refers to actual possession and not merely symbolical inferable from the mere execution of the document.

“Has the vendor complied with this express commitment? she did not. As provided in Article 1462, the thing sold shall be deemed delivered when the vendee is placed in the control and possession thereof, which situation does not here obtain because from the execution of the sale up to the present the vendee was never able to take possession of the lands due to the insistent refusal of Martin Deloso to surrender them claiming ownership thereof. And although it is postulated in the same article that the execution of a public document is equivalent to delivery, this legal fiction only holds true when there is no impediment that may prevent the passing of the property from the hands of the vendor into those of the vendee. x x x.”[31]

The execution of a public instrument gives rise, therefore, only to a prima facie presumption of delivery. Such presumption is destroyed when the instrument itself expresses or implies that delivery was not intended; or when by other means it is shown that such delivery was not effected, because a third person was actually in possession of the thing. In the latter case, the sale cannot be considered consummated.

However, the point may be raised that under Article 1164 of the Civil Code, Equatorial as buyer acquired a right to the fruits of the thing sold from the time the obligation to deliver the property to petitioner arose.[32] That time arose upon the perfection of the Contract of Sale on July 30, 1978, from which moment the laws provide that the parties to a sale may reciprocally demand performance.[33] Does this mean that despite the judgment rescinding the sale, the right to the fruits[34] belonged to, and remained enforceable by, Equatorial?

Article 1385 of the Civil Code answers this question in the negative, because “[r]escission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; x x x.” Not only the land and building sold, but also the rental payments paid, if any, had to be returned by the buyer.

Another point. The Decision in the mother case stated that “Equatorial x x x has received rents” from Mayfair “during all the years that this controversy has been litigated.” The Separate Opinion of Justice Teodoro Padilla in the mother case also said that Equatorial was “deriving rental income” from the disputed property. Even herein ponente‘s Separate Concurring Opinion in the mother case recognized these rentals. The question now is: Do all these statements concede actual delivery?

The answer is “No.” The fact that Mayfair paid rentals to Equatorial during the litigation should not be interpreted to mean either actual delivery or ipso facto recognition of Equatorial’s title.

The CA Records of the mother case[35] show that Equatorial - as alleged buyer of the disputed properties and as alleged successor-in-interest of Carmelo’s rights as lessor - submitted two ejectment suits against Mayfair. Filed in the Metropolitan Trial Court of Manila, the first was docketed as Civil Case No. 121570 on July 9, 1987; and the second, as Civil Case No. 131944 on May 28, 1990. Mayfair eventually won them both. However, to be able to maintain physical possession of the premises while awaiting the outcome of the mother case, it had no choice but to pay the rentals.

The rental payments made by Mayfair should not be construed as a recognition of Equatorial as the new owner. They were made merely to avoid imminent eviction. It is in this context that one should understand the aforequoted factual statements in the ponencia in the mother case, as well as the Separate Opinion of Mr. Justice Padilla and the Separate Concurring Opinion of the herein ponente.

At bottom, it may be conceded that, theoretically, a rescissible contract is valid until rescinded. However, this general principle is not decisive to the issue of whether Equatorial ever acquired the right to collect rentals. What is decisive is the civil law rule that ownership is acquired, not by mere agreement, but by tradition or delivery. Under the factual environment of this controversy as found by this Court in the mother case, Equatorial was never put in actual and effective control or possession of the property because of Mayfair’s timely objection.

As pointed out by Justice Holmes, general propositions do not decide specific cases. Rather, “laws are interpreted in the context of the peculiar factual situation of each case. Each case has its own flesh and blood and cannot be decided on the basis of isolated clinical classroom principles.”[36]

In short, the sale to Equatorial may have been valid from inception, but it was judicially rescinded before it could be consummated. Petitioner never acquired ownership, not because the sale was void, as erroneously claimed by the trial court, but because the sale was not consummated by a legally effective delivery of the property sold.

Benefits Precluded by Petitioner’s Bad Faith

Furthermore, assuming for the sake of argument that there was valid delivery, petitioner is not entitled to any benefits from the “rescinded” Deed of Absolute Sale because of its bad faith. This being the law of the mother case decided in 1996, it may no longer be changed because it has long become final and executory. Petitioner’s bad faith is set forth in the following pertinent portions of the mother case:

“First and foremost is that the petitioners acted in bad faith to render Paragraph 8 ‘inutile.’

xxx xxx xxx

“Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question rescissible. We agree with respondent Appellate Court that the records bear out the fact that Equatorial was aware of the lease contracts because its lawyers had, prior to the sale, studied the said contracts. As such, Equatorial cannot tenably claim to be a purchaser in good faith, and, therefore, rescission lies.

xxx xxx xxx

“As also earlier emphasized, the contract of sale between Equatorial and Carmelo is characterized by bad faith, since it was knowingly entered into in violation of the rights of and to the prejudice of Mayfair. In fact, as correctly observed by the Court of Appeals, Equatorial admitted that its lawyers had studied the contract of lease prior to the sale. Equatorial’s knowledge of the stipulations therein should have cautioned it to look further into the agreement to determine if it involved stipulations that would prejudice its own interests.

xxx xxx xxx

“On the part of Equatorial, it cannot be a buyer in good faith because it bought the property with notice and full knowledge that Mayfair had a right to or interest in the property superior to its own. Carmelo and Equatorial took unconscientious advantage of Mayfair.”[37] (Italics supplied)

Thus, petitioner was and still is entitled solely to the return of the purchase price it paid to Carmelo; no more, no less. This Court has firmly ruled in the mother case that neither of them is entitled to any consideration of equity, as both “took unconscientious advantage of Mayfair.”[38]

In the mother case, this Court categorically denied the payment of interest, a fruit of ownership. By the same token, rentals, another fruit of ownership, cannot be granted without mocking this Court’s en banc Decision, which has long become final.

Petitioner’s claim of reasonable compensation for respondent’s use and occupation of the subject property from the time the lease expired cannot be countenanced. If it suffered any loss, petitioner must bear it in silence, since it had wrought that loss upon itself. Otherwise, bad faith would be rewarded instead of punished.

We uphold the trial court’s disposition, not for the reason it gave, but for (a) the patent failure to deliver the property and (b) petitioner’s bad faith, as above discussed.

Second Issue:

Ground in Motion to Dismiss

Procedurally, petitioner claims that the trial court deviated from the accepted and usual course of judicial proceedings when it dismissed Civil Case No. 97-85141 on a ground not raised in respondent’s Motion to Dismiss. Worse, it allegedly based its dismissal on a ground not provided for in a motion to dismiss as enunciated in the Rules of Court.

We are not convinced. A review of respondent’s Motion to Dismiss Civil Case No. 97-85141 shows that there were two grounds invoked, as follows:

“(A)

Plaintiff is guilty of forum-shopping.

“(B)

Plaintiff’s cause of action, if any, is barred by prior judgment.”[39]

The court a quo ruled, inter alia, that the cause of action of petitioner (plaintiff in the case below) had been barred by a prior judgment of this Court in GR No. 106063, the mother case.

Although it erred in its interpretation of the said Decision when it argued that the rescinded Deed of Absolute Sale was “void,” we hold, nonetheless, that petitioner’s cause of action is indeed barred by a prior judgment of this Court. As already discussed, our Decision in GR No. 106063 shows that petitioner is not entitled to back rentals, because it never became the owner of the disputed properties due to a failure of delivery. And even assuming arguendo that there was a valid delivery, petitioner’s bad faith negates its entitlement to the civil fruits of ownership, like interest and rentals.

Under the doctrine of res judicata or bar by prior judgment, a matter that has been adjudicated by a court of competent jurisdiction must be deemed to have been finally and conclusively settled if it arises in any subsequent litigation between the same parties and for the same cause.[40] Thus, “[a] final judgment on the merits rendered by a court of competent jurisdiction is conclusive as to the rights of the parties and their privies and constitutes an absolute bar to subsequent actions involving the same claim, demand, or cause of action.”[41] Res judicata is based on the ground that “the party to be affected, or some other with whom he is in privity, has litigated the same matter in a former action in a court of competent jurisdiction, and should not be permitted to litigate it again.”[42]

It frees the parties from undergoing all over again the rigors of unnecessary suits and repetitive trials. At the same time, it prevents the clogging of court dockets. Equally important, it stabilizes rights and promotes the rule of law.

We find no need to repeat the foregoing disquisitions on the first issue to show satisfaction of the elements of res judicata. Suffice it to say that, clearly, our ruling in the mother case bars petitioner from claiming back rentals from respondent. Although the court a quo erred when it declared “void from inception” the Deed of Absolute Sale between Carmelo and petitioner, our foregoing discussion supports the grant of the Motion to Dismiss on the ground that our prior judgment in GR No. 106063 has already resolved the issue of back rentals.

On the basis of the evidence presented during the hearing of Mayfair’s Motion to Dismiss, the trial court found that the issue of ownership of the subject property has been decided by this Court in favor of Mayfair. We quote the RTC:

“The Supreme Court in the Equatorial case, G.R. No. 106063 has categorically stated that the Deed of Absolute Sale dated July 31, 1978 has been rescinded subjecting the present complaint to res judicata.”[43] (Emphasis in the original)

Hence, the trial court decided the Motion to Dismiss on the basis of res judicata, even if it erred in interpreting the meaning of “rescinded” as equivalent to “void.” In short, it ruled on the ground raised; namely, bar by prior judgment. By granting the Motion, it disposed correctly, even if its legal reason for nullifying the sale was wrong. The correct reasons are given in this Decision.

WHEREFORE, the Petition is hereby DENIED. Costs against petitioner.

SO ORDERED.

Davide, Jr., C.J., Quisumbing, Pardo, Buena, Ynares-Santiago, and Carpio, JJ., concur.

Bellosillo, J., join the dissenting opinion of J. Sandoval-Gutierrez.

Melo, J., see concurring opinion.

Puno, and Mendoza, JJ., concur and join the concurring opinion of J. Melo.

Vitug, and Sandoval-Gutierrez, JJ., see dissenting opinion.

Kapunan, J., join the dissenting opinion of J. Vitug and Sandoval-Gutierrez.

De Leon, Jr., J., join the dissenting opinion of J. Vitug.