FIRST DIVISION

[G.R. No. 119255. April 9, 2003]

TOMAS K. CHUA, petitioner, vs. COURT OF APPEALS and
ENCARNACION VALDES-CHOY, respondents.

DECISION

Types of Delivery
CARPIO, J.:

The Case

This is a petition for review on certiorari seeking to reverse the decision[1] of the Court
of Appeals in an action for specific performance[2] filed in the Regional Trial Court[3] by
petitioner Tomas K. Chua (Chua) against respondent Encarnacion Valdes-Choy (Valdes-
Choy). Chua sought to compel Valdes-Choy to consummate the sale of her paraphernal
house and lot in Makati City. The Court of Appeals reversed the decision[4] rendered by
the trial court in favor of Chua.

The Facts

Valdes-Choy advertised for sale her paraphernal house and lot (Property) with an
area of 718 square meters located at No. 40 Tampingco Street corner Hidalgo Street,
San Lorenzo Village, Makati City. The Property is covered by Transfer Certificate of Title
No. 162955 (TCT) issued by the Register of Deeds of Makati City in the name of Valdes-
Choy. Chua responded to the advertisement. After several meetings, Chua and Valdes-
Choy agreed on a purchase price of P10,800,000.00 payable in cash.
On 30 June 1989, Valdes-Choy received from Chua a check for P100,000.00. The
receipt (Receipt) evidencing the transaction, signed by Valdes-Choy as seller, and Chua
as buyer, reads:

30 June 1989

RECEIPT

RECEIVED from MR. TOMAS K. CHUA PBCom Check No. 206011 in the amount
of ONE HUNDRED THOUSAND PESOS ONLY (P100,000.00) as EARNEST
MONEY for the sale of the property located at 40 Tampingco cor. Hidalgo, San
Lorenzo Village, Makati, Metro Manila (Area : 718 sq. meters).
The balance of TEN MILLION SEVEN HUNDRED THOUSAND (P10,700,000.00)
is payable on or before 15 July 1989. Capital Gains Tax for the account of the
[5]

seller. Failure to pay balance on or before 15 July 1989 forfeits the earnest
money. This provided that all papers are in proper order. [6]

CONFORME: ENCARNACION VALDES

Seller

TOMAS K. CHUA

Buyer

x x x. [7]

In the morning of 13 July 1989, Chua secured from Philippine Bank of Commerce
(PBCom) a managers check for P480,000.00. Strangely, after securing the managers
check, Chua immediately gave PBCom a verbal stop payment order claiming that this
managers check for P480,000.00 was lost and/or misplaced.[8] On the same day, after
receipt of Chuas verbal order, PBCom Assistant VicePresident Julie C. Pe notified in
writing[9] the PBCom Operations Group of Chuas stop payment order.
In the afternoon of 13 July 1989, Chua and Valdes-Choy met with their respective
counsels to execute the necessary documents and arrange the payments. [10] Valdes-Choy
as vendor and Chua as vendee signed two Deeds of Absolute Sale (Deeds of Sale). The
first Deed of Sale covered the house and lot for the purchase price
of P8,000,000.00.[11] The second Deed of Sale covered the furnishings, fixtures and
movable properties contained in the house for the purchase price of P2,800,000.00.[12]The
parties also computed the capital gains tax to amount to P485,000.00.
On 14 July 1989, the parties met again at the office of Valdes-Choys counsel. Chua
handed to Valdes-Choy the PBCom managers check for P485,000.00 so Valdes-Choy
could pay the capital gains tax as she did not have sufficient funds to pay the tax. Valdes-
Choy issued a receipt showing that Chua had a remaining balance of P10,215,000.00
after deducting the advances made by Chua. This receipt reads:

July 14, 1989

Received from MR. TOMAS K. CHUA PBCom. Check No. 325851 in the amount of
FOUR HUNDRED EIGHTY FIVE THOUSAND PESOS ONLY (P485,000.00) as
Partial Payment for the sale of the property located at 40 Tampingco Cor. Hidalgo St.,
San Lorenzo Village, Makati, Metro Manila (Area 718 sq. meters), covered by TCT
No. 162955 of the Registry of Deeds of Makati, Metro Manila.
The total purchase price of the above-mentioned property is TEN MILLION EIGHT
HUNDRED THOUSAND PESOS only, broken down as follows:

SELLING PRICE P10,800,000.00

EARNEST MONEY P100,000.00

PARTIAL PAYMENT 485,000.00

____________________585,000.00

BALANCE DUE TO
ENCARNACION VALDEZ-CHOY P10,215,000.00
VVVVVVVVVVVV

PLUS P80,000.00 for documentary

stamps paid in advance by seller ___80,000.00

P10,295,000.00

x x x. [13]

On the same day, 14 July 1989, Valdes-Choy, accompanied by Chua, deposited

the P485,000.00 managers check to her account with Traders Royal Bank. She then
purchased a Traders Royal Bank managers check for P480,000.00 payable to the
Commissioner of Internal Revenue for the capital gains tax. Valdes-Choy and Chua
returned to the office of Valdes-Choys counsel and handed the Traders Royal Bank check
to the counsel who undertook to pay the capital gains tax. It was then also that
Chua showed to Valdes-Choy a PBCom managers check for P10,215,000.00
representing the balance of the purchase price. Chua, however, did not give this PBCom
managers check to Valdes-Choy because the TCT was still registered in the name of
Valdes-Choy. Chua required that the Property be registered first in his name before he
would turn over the check to Valdes-Choy. This angered Valdes-Choy who tore up the
Deeds of Sale, claiming that what Chua required was not part of their agreement. [14]
On the same day, 14 July 1989, Chua confirmed his stop payment order by submitting
to PBCom an affidavit of loss[15] of the PBCom Managers Check for P480,000.00. PBCom
Assistant Vice-President Pe, however, testified that the managers check was
nevertheless honored because Chua subsequently verbally advised the bank that he was
lifting the stop-payment order due to his special arrangement with the bank. [16]
On 15 July 1989, the deadline for the payment of the balance of the purchase price,
Valdes-Choy suggested to her counsel that to break the impasse Chua should deposit in
escrow the P10,215,000.00 balance.[17] Upon such deposit, Valdes-Choy was willing to
cause the issuance of a new TCT in the name of Chua even without receiving the balance
of the purchase price. Valdes-Choy believed this was the only way she could protect
herself if the certificate of title is transferred in the name of the buyer before she is fully
paid. Valdes-Choys counsel promised to relay her suggestion to Chua and his counsel,
but nothing came out of it.
On 17 July 1989, Chua filed a complaint for specific performance against Valdes-
Choy which the trial court dismissed on 22 November 1989. On 29 November 1989, Chua
re-filed his complaint for specific performance with damages. After trial in due course, the
trial court rendered judgment in favor of Chua, the dispositive portion of which reads:

Applying the provisions of Article 1191 of the new Civil Code, since this is an action
for specific performance where the plaintiff, as vendee, wants to pursue the sale, and
in order that the fears of the defendant may be allayed and still have the sale
materialize, judgment is hereby rendered:

I. 1. Ordering the defendant to deliver to the Court not later than five (5) days from
finality of this decision:

a. the owners duplicate copy of TCT No. 162955 registered in her name;

b. the covering tax declaration and the latest tax receipt evidencing payment of real
estate taxes;

c. the two deeds of sale prepared by Atty. Mark Bocobo on July 13, 1989, duly
executed by defendant in favor of the plaintiff, whether notarized or not; and

2. Within five (5) days from compliance by the defendant of the above, ordering the
plaintiff to deliver to the Branch Clerk of Court of this Court the sum
of P10,295,000.00 representing the balance of the consideration (with the sum
of P80,000.00 for stamps already included);

3. Ordering the Branch Clerk of this Court or her duly authorized representative:

a. to make representations with the BIR for the payment of capital gains tax for the
sale of the house and lot (not to include the fixtures) and to pay the same from the
funds deposited with her;

b. to present the deed of sale executed in favor of the plaintiff, together with the
owners duplicate copy of TCT No. 162955, real estate tax receipt and proof of
payment of capital gains tax, to the Makati Register of Deeds;

c. to pay the required registration fees and stamps (if not yet advanced by the
defendant) and if needed update the real estate taxes all to be taken from the funds
deposited with her; and

d. surrender to the plaintiff the new Torrens title over the property;
4. Should the defendant fail or refuse to surrender the two deeds of sale over the
property and the fixtures that were prepared by Atty. Mark Bocobo and executed by
the parties, the Branch Clerk of Court of this Court is hereby authorized and
empowered to prepare, sign and execute the said deeds of sale for and in behalf of the
defendant;

5. Ordering the defendant to pay to the plaintiff;

a. the sum of P100,000.00 representing moral and compensatory damages for the
plaintiff; and

b. the sum of P50,000.00 as reimbursement for plaintiffs attorneys fees and cost of
litigation.

6. Authorizing the Branch Clerk of Court of this Court to release to the plaintiff, to be
taken from the funds said plaintiff has deposited with the Court, the amounts
covered at paragraph 5 above;

7. Ordering the release of the P10,295,000.00 to the defendant after deducting

therefrom the following amounts:

a. the capital gains tax paid to the BIR;

b. the expenses incurred in the registration of the sale, updating of real estate taxes,
and transfer of title; and

c. the amounts paid under this judgment to the plaintiff.

8. Ordering the defendant to surrender to the plaintiff or his representatives the

premises with the furnishings intact within seventy-two (72) hours from receipt of the
proceeds of the sale;

9. No interest is imposed on the payment to be made by the plaintiff because he had

always been ready to pay the balance and the premises had been used or occupied by
the defendant for the duration of this case.

II. In the event that specific performance cannot be done for reasons or causes not
attributable to the plaintiff, judgment is hereby rendered ordering the defendant:

1. To refund to the plaintiff the earnest money in the sum of P100,000.00, with
interest at the legal rate from June 30, 1989 until fully paid;
2. To refund to the plaintiff the sum of P485,000.00 with interest at the legal rate from
July 14, 1989 until fully paid;

3. To pay to the plaintiff the sum of P700,000.00 in the concept of moral damages and
the additional sum of P300,000.00 in the concept of exemplary damages; and

4. To pay to the plaintiff the sum of P100,000.00 as reimbursement of attorneys fees

and cost of litigation.

SO ORDERED. [18]

Valdes-Choy appealed to the Court of Appeals which reversed the decision of the
trial court. The Court of Appeals handed down a new judgment, disposing as follows:

WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE,
and another one is rendered:

(1) Dismissing Civil Case No. 89-5772;

(2) Declaring the amount of P100,000.00, representing earnest money as forfeited in

favor of defendant-appellant;

(3) Ordering defendant-appellant to return/refund the amount of P485,000.00 to

plaintiff-appellee without interest;

(4) Dismissing defendant-appellants compulsory counter-claim; and

(5) Ordering the plaintiff-appellee to pay the costs. [19]

Hence, the instant petition.

The Trial Courts Ruling

The trial court found that the transaction reached an impasse when Valdes-Choy
wanted to be first paid the full consideration before a new TCT covering the Property is
issued in the name of Chua. On the other hand, Chua did not want to pay the
consideration in full unless a new TCT is first issued in his name. The trial court faulted
Valdes-Choy for this impasse.
The trial court held that the parties entered into a contract to sell on 30 June 1989,
as evidenced by the Receipt for the P100,000.00 earnest money. The trial court pointed
out that the contract to sell was subject to the following conditions: (1) the balance
of P10,700,000.00 was payable not later than 15 July 1989; (2) Valdes-Choy may stay in
the Property until 13 August 1989; and (3) all papers must be in proper order before full
payment is made.
The trial court held that Chua complied with the terms of the contract to sell. Chua
showed that he was prepared to pay Valdes-Choy the consideration in full on 13 July
1989, two days before the deadline of 15 July 1989. Chua even added P80,000.00 for the
documentary stamp tax. He purchased from PBCom two managers checks both payable
to Valdes-Choy. The first check for P485,000.00 was to pay the capital gains tax. The
second check for P10,215,000.00 was to pay the balance of the purchase price.The trial
court was convinced that Chua demonstrated his capacity and readiness to pay the
balance on 13 July 1989 with the production of the PBCom managers check
for P10,215,000.00.
On the other hand, the trial court found that Valdes-Choy did not perform her
correlative obligation under the contract to sell to put all the papers in order. The trial court
noted that as of 14 July 1989, the capital gains tax had not been paid because Valdes-
Choys counsel who was suppose to pay the tax did not do so. The trial court declared
that Valdes-Choy was in a position to deliver only the owners duplicate copy of the TCT,
the signed Deeds of Sale, the tax declarations, and the latest realty tax receipt. The trial
court concluded that these documents were all useless without the Bureau of Internal
Revenue receipt evidencing full payment of the capital gains tax which is a pre-requisite
to the issuance of a new certificate of title in Chuas name.
The trial court held that Chuas non-payment of the balance of P10,215,000.00 on the
agreed date was due to Valdes-Choys fault.

The Court of Appeals Ruling

In reversing the trial court, the Court of Appeals ruled that Chuas stance to pay the
full consideration only after the Property is registered in his name was not the agreement
of the parties. The Court of Appeals noted that there is a whale of difference between the
phrases all papers are in proper order as written on the Receipt, and transfer of title as
demanded by Chua.
Contrary to the findings of the trial court, the Court of Appeals found that all the papers
were in order and that Chua had no valid reason not to pay on the agreed date. Valdes-
Choy was in a position to deliver the owners duplicate copy of the TCT, the signed Deeds
of Sale, the tax declarations, and the latest realty tax receipt. The Property was also free
from all liens and encumbrances.
The Court of Appeals declared that the trial court erred in considering Chuas showing
to Valdes-Choy of the PBCom managers check for P10,215,000.00 as compliance with
Chuas obligation to pay on or before 15 July 1989. The Court of Appeals pointed out that
Chua did not want to give up the check unless the property was already in his
name.[20] Although Chua demonstrated his capacity to pay, this could not be equated with
actual payment which he refused to do.
 The Court of Appeals did not consider the non-payment of the capital gains tax as
failure by Valdes-Choy to put the papers in proper order. The Court of Appeals explained
that the payment of the capital gains tax has no bearing on the validity of the Deeds of
Sale. It is only after the deeds are signed and notarized can the final computation and
payment of the capital gains tax be made.

The Issues

In his Memorandum, Chua raises the following issues:

1. WHETHER THERE IS A PERFECTED CONTRACT OF SALE OF

IMMOVABLE PROPERTY;

2. WHETHER VALDES-CHOY MAY RESCIND THE CONTRACT IN

CONTROVERSY WITHOUT OBSERVING THE PROVISIONS OF ARTICLE
1592 OF THE NEW CIVIL CODE;

3. WHETHER THE WITHHOLDING OF PAYMENT OF THE BALANCE OF THE

PURCHASE PRICE ON THE PART OF CHUA (AS VENDEE) WAS JUSTIFIED
BY THE CIRCUMSTANCES OBTAINING AND MAY NOT BE RAISED AS
GROUND FOR THE AUTOMATIC RESCISSION OF THE CONTRACT OF
SALE;

4. WHETHER THERE IS LEGAL AND FACTUAL BASIS FOR THE COURT OF

APPEALS TO DECLARE THE EARNEST MONEY IN THE AMOUNT
OF P100,000.00 AS FORFEITED IN FAVOR OF VALDES-CHOY;

5. WHETHER THE TRIAL COURTS JUDGMENT IS IN ACCORD WITH LAW,

REASON AND EQUITY DESERVING OF BEING REINSTATED AND
AFFIRMED. [21]

The issues for our resolution are: (a) whether the transaction between Chua and
Valdes-Choy is a perfected contract of sale or a mere contract to sell, and (b) whether
Chua can compel Valdes-Choy to cause the issuance of a new TCT in Chuas name even
before payment of the full purchase price.

The Courts Ruling

The petition is bereft of merit.

There is no dispute that Valdes-Choy is the absolute owner of the Property which is
registered in her name under TCT No.162955, free from all liens and encumbrances. She
was ready, able and willing to deliver to Chua the owners duplicate copy of the TCT, the
signed Deeds of Sale, the tax declarations, and the latest realty tax receipt. There is also
no dispute that on 13 July 1989, Valdes-Choy received PBCom Check No. 206011
for P100,000.00 as earnest money from Chua. Likewise, there is no controversy that the
Receipt for the P100,000.00 earnest money embodied the terms of the binding contract
between Valdes-Choy and Chua.
Further, there is no controversy that as embodied in the Receipt, Valdes-Choy and
Chua agreed on the following terms: (1) the balance of P10,215,000.00 is payable on or
before 15 July 1989; (2) the capital gains tax is for the account of Valdes-Choy; and (3) if
Chua fails to pay the balance of P10,215,000.00 on or before 15 July 1989, Valdes-Choy
has the right to forfeit the earnest money, provided that all papers are in proper order. On
13 July 1989, Chua gave Valdes-Choy the PBCom managers check for P485,000.00 to
pay the capital gains tax.
Both the trial and appellate courts found that the balance of P10,215,000.00 was not
actually paid to Valdes-Choy on the agreed date. On 13 July 1989, Chua did show to
Valdes-Choy the PBCom managers check for P10,215,000.00, with Valdes-Choy as
payee. However, Chua refused to give this check to Valdes-Choy until a new TCT
covering the Property is registered in Chuas name. Or, as the trial court put it, until there
is proof of payment of the capital gains tax which is a pre-requisite to the issuance of a
new certificate of title.

First and Second Issues: Contract of Sale or Contract to Sell?

Chua has consistently characterized his agreement with Valdez-Choy, as evidenced

by the Receipt, as a contract to sell and not a contract of sale. This has been Chuas
persistent contention in his pleadings before the trial and appellate courts.
Chua now pleads for the first time that there is a perfected contract of sale rather than
a contract to sell. He contends that there was no reservation in the contract of sale that
Valdes-Choy shall retain title to the Property until after the sale. There was no agreement
for an automatic rescission of the contract in case of Chuas default. He argues for the
first time that his payment of earnest money and its acceptance by Valdes-Choy
precludes the latter from rejecting the binding effect of the contract of sale. Thus, Chua
claims that Valdes-Choy may not validly rescind the contract of sale without following
Article 1592[22] of the Civil Code which requires demand, either judicially or by notarial act,
before rescission may take place.
Chuas new theory is not well taken in light of well-settled jurisprudence. An issue not
raised in the court below cannot be raised for the first time on appeal, as this is offensive
to the basic rules of fair play, justice and due process.[23] In addition, when a party
deliberately adopts a certain theory, and the case is tried and decided on that theory in
the court below, the party will not be permitted to change his theory on appeal. To permit
him to change his theory will be unfair to the adverse party.[24]
 Nevertheless, in order to put to rest all doubts on the matter, we hold that the
agreement between Chua and Valdes-Choy, as evidenced by the Receipt, is a contract
to sell and not a contract of sale. The distinction between a contract of sale and contract
to sell is well-settled:

In a contract of sale, the title to the property passes to the vendee upon the delivery of
the thing sold; in a contract to sell, ownership is, by agreement, reserved in the vendor
and is not to pass to the vendee until full payment of the purchase price. Otherwise
stated, 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; whereas, in a contract
to sell, title is retained by the vendor until full payment of the price. In the latter
contract, payment of the price is a positive suspensive condition, failure of which is
not a breach but an event that prevents the obligation of the vendor to convey title
from becoming effective. [25]

A perusal of the Receipt shows that the true agreement between the parties was a
contract to sell. Ownership over the Property was retained by Valdes-Choy and was not
to pass to Chua until full payment of the purchase price.
First, the Receipt provides that the earnest money shall be forfeited in case the buyer
fails to pay the balance of the purchase price on or before 15 July 1989. In such event,
Valdes-Choy can sell the Property to other interested parties. There is in effect a right
reserved in favor of Valdes-Choy not to push through with the sale upon Chuas failure to
remit the balance of the purchase price before the deadline. This is in the nature of a
stipulation reserving ownership in the seller until full payment of the purchase price. This
is also similar to giving the seller the right to rescind unilaterally the contract the moment
the buyer fails to pay within a fixed period.[26]
Second, the agreement between Chua and Valdes-Choy was embodied in a receipt
rather than in a deed of sale, ownership not having passed between them. The signing of
the Deeds of Sale came later when Valdes-Choy was under the impression that Chua
was about to pay the balance of the purchase price. The absence of a formal deed of
conveyance is a strong indication that the parties did not intend immediate transfer of
ownership, but only a transfer after full payment of the purchase price.[27]
Third, Valdes-Choy retained possession of the certificate of title and all other
documents relative to the sale. When Chua refused to pay Valdes-Choy the balance of
the purchase price, Valdes-Choy also refused to turn-over to Chua these
documents.[28]These are additional proof that the agreement did not transfer to Chua,
either by actual or constructive delivery, ownership of the Property. [29]
It is true that Article 1482 of the Civil Code provides that [W]henever earnest money
is given in a contract of sale, it shall be considered as part of the price and proof of the
perfection of the contract. However, this article speaks of earnest money given in
a contract of sale. In this case, the earnest money was given in a contract to sell. The
Receipt evidencing the contract to sell stipulates that the earnest money is a forfeitable
deposit, to be forfeited if the sale is not consummated should Chua fail to pay the balance
of the purchase price. The earnest money forms part of the consideration only if the sale
is consummated upon full payment of the purchase price. If there is a contract of sale,
Valdes-Choy should have the right to compel Chua to pay the balance of the purchase
price. Chua, however, has the right to walk away from the transaction, with no obligation
to pay the balance, although he will forfeit the earnest money. Clearly, there is no contract
of sale. The earnest money was given in a contract to sell, and thus Article 1482, which
speaks of a contract of sale, is not applicable.
Since the agreement between Valdes-Choy and Chua is a mere contract to sell, the
full payment of the purchase price partakes of a suspensive condition. The non-fulfillment
of the condition prevents the obligation to sell from arising and ownership is retained by
the seller without further remedies by the buyer.[30] Article 1592 of the Civil Code permits
the buyer to 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 notarial
act. However, Article 1592 does not apply to a contract to sell where the seller reserves
the ownership until full payment of the price.[31]

Third and Fourth Issues: Withholding of Payment of the Balance

of the Purchase Price and Forfeiture of the Earnest Money

Chua insists that he was ready to pay the balance of the purchase price but withheld
payment because Valdes-Choy did not fulfill her contractual obligation to put all the
papers in proper order. Specifically, Chua claims that Valdes-Choy failed to show that the
capital gains tax had been paid after he had advanced the money for its payment. For the
same reason, he contends that Valdes-Choy may not forfeit the earnest money even if
he did not pay on time.
There is a variance of interpretation on the phrase all papers are in proper order as
written in the Receipt. There is no dispute though, that as long as the papers are in proper
order, Valdes-Choy has the right to forfeit the earnest money if Chua fails to pay the
balance before the deadline.
The trial court interpreted the phrase to include payment of the capital gains tax, with
the Bureau of Internal Revenue receipt as proof of payment. The Court of Appeals held
otherwise. We quote verbatim the ruling of the Court of Appeals on this matter:

The trial court made much fuss in connection with the payment of the capital gains
tax, of which Section 33 of the National Internal Revenue Code of 1977, is the
governing provision insofar as its computation is concerned. The trial court failed to
consider Section 34-(a) of the said Code, the last sentence of which provides, that
[t]he amount realized from the sale or other disposition of property shall be the sum of
money received plus the fair market value of the property (other than money)
received; and that the computation of the capital gains tax can only be finally assessed
by the Commission on Internal Revenue upon the presentation of the Deeds of
Absolute Sale themselves, without which any premature computation of the
capital gains tax becomes of no moment. At any rate, the computation and payment of
the capital gains tax has no bearing insofar as the validity and effectiveness of the
deeds of sale in question are concerned, because it is only after the contracts of sale
are finally executed in due form and have been duly notarized that the final
computation of the capital gains tax can follow as a matter of course.Indeed, exhibit
D, the PBC Check No. 325851, dated July 13, 1989, in the amount of P485,000.00,
which is considered as part of the consideration of the sale, was deposited in the name
of appellant, from which she in turn, purchased the corresponding check in the
amount representing the sum to be paid for capital gains tax and drawn in the name of
the Commissioner of Internal Revenue, which then allayed any fear or doubt that that
amount would not be paid to the Government after all. [32]

We see no reason to disturb the ruling of the Court of Appeals.

In a contract to sell, the obligation of the seller to sell becomes demandable only upon
the happening of the suspensive condition. In this case, the suspensive condition is the
full payment of the purchase price by Chua. Such full payment gives rise to Chuas right
to demand the execution of the contract of sale.
It is only upon the existence of the contract of sale that the seller becomes obligated
to transfer the ownership of the thing sold to the buyer. Article 1458 of the Civil Code
defines a contract of sale as follows:

Art. 1458. By the contract of sale one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent.

x x x. (Emphasis supplied)

Prior to the existence of the contract of sale, the seller is not obligated to transfer
ownership to the buyer, even if there is a contract to sell between them. It is also upon
the existence of the contract of sale that the buyer is obligated to pay the purchase price
to the seller. Since the transfer of ownership is in exchange for the purchase price, these
obligations must be simultaneously fulfilled at the time of the execution of the contract of
sale, in the absence of a contrary stipulation.
In a contract of sale, the obligations of the seller are specified in Article 1495 of the
Civil Code, as follows:

Art. 1495. The vendor is bound to transfer the ownership of and deliver, as well as
warrant the thing which is the object of the sale. (Emphasis supplied)

The obligation of the seller is to transfer to the buyer ownership of the thing sold. In the
sale of real property, the seller is not obligated to transfer in the name of the buyer a new
certificate of title, but rather to transfer ownership of the real property. There is a
difference between transfer of the certificate of title in the name of the buyer, and transfer
of ownership to the buyer. The buyer may become the owner of the real property even if
the certificate of title is still registered in the name of the seller. As between the seller and
buyer, ownership is transferred not by the issuance of a new certificate of title in the name
of the buyer but by the execution of the instrument of sale in a public document.
In a contract of sale, ownership is transferred upon delivery of the thing sold. As the
noted civil law commentator Arturo M. Tolentino explains it, -

Delivery is not only a necessary condition for the enjoyment of the thing, but is a mode
of acquiring dominion and determines the transmission of ownership, the birth of the
real right. The delivery, therefore, made in any of the forms provided in articles
1497 to 1505 signifies that the transmission of ownership from vendor to vendee has
taken place. The delivery of the thing constitutes an indispensable requisite for the
purpose of acquiring ownership. Our law does not admit the doctrine of transfer of
property by mere consent; the ownership, the property right, is derived only from
delivery of the thing. x x x. (Emphasis supplied)
[33]

In a contract of sale of real property, delivery is effected when the instrument of sale
is executed in a public document. When the deed of absolute sale is signed by the parties
and notarized, then delivery of the real property is deemed made by the seller to the
buyer. Article 1498 of the Civil Code provides that

Art. 1498. 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.

x x x.

Similarly, in a contract to sell real property, once the seller is ready, able and willing
to sign the deed of absolute sale before a notary public, the seller is in a position to
transfer ownership of the real property to the buyer. At this point, the seller complies with
his undertaking to sell the real property in accordance with the contract to sell, and to
assume all the obligations of a vendor under a contract of sale pursuant to the relevant
articles of the Civil Code. In a contract to sell, the seller is not obligated to transfer
ownership to the buyer. Neither is the seller obligated to cause the issuance of a new
certificate of title in the name of the buyer.However, the seller must put all his papers in
proper order to the point that he is in a position to transfer ownership of the real property
to the buyer upon the signing of the contract of sale.
In the instant case, Valdes-Choy was in a position to comply with all her obligations
as a seller under the contract to sell. First, she already signed the Deeds of Sale in the
office of her counsel in the presence of the buyer. Second, she was prepared to turn-over
the owners duplicate of the TCT to the buyer, along with the tax declarations and latest
realty tax receipt. Clearly, at this point Valdes-Choy was ready, able and willing to transfer
ownership of the Property to the buyer as required by the contract to sell, and by Articles
1458 and 1495 of the Civil Code to consummate the contract of sale.
 Chua, however, refused to give to Valdes-Choy the PBCom managers check for the
balance of the purchase price. Chua imposed the condition that a new TCT should first
be issued in his name, a condition that is found neither in the law nor in the contract to
sell as evidenced by the Receipt. Thus, at this point Chua was not ready, able and willing
to pay the full purchase price which is his obligation under the contract to sell. Chua was
also not in a position to assume the principal obligation of a vendee in a contract of sale,
which is also to pay the full purchase price at the agreed time. Article 1582 of the Civil
Code provides that

Art. 1582. The vendee is bound to accept delivery and to pay the price of the thing
sold at the time and place stipulated in the contract.
x x x. (Emphasis supplied)

In this case, the contract to sell stipulated that Chua should pay the balance of the
purchase price on or before 15 July 1989.The signed Deeds of Sale also stipulated that
the buyer shall pay the balance of the purchase price upon signing of the deeds.Thus,
the Deeds of Sale, both signed by Chua, state as follows:

Deed of Absolute Sale covering the lot:

xxx

For and in consideration of the sum of EIGHT MILLION PESOS (P8,000,000.00),

Philippine Currency, receipt of which in full is hereby acknowledged by the
VENDOR from the VENDEE, the VENDOR sells, transfers and conveys unto the
VENDEE, his heirs, successors and assigns, the said parcel of land, together with the
improvements existing thereon, free from all liens and encumbrances. (Emphasis
[34]

supplied)

Deed of Absolute Sale covering the furnishings:

xxx

For and in consideration of the sum of TWO MILLION EIGHT HUNDRED

THOUSAND PESOS (P2,800,000.00), Philippine Currency, receipt of which in full
is hereby acknowledged by the VENDOR from the VENDEE, the VENDOR sells,
transfers and conveys unto the VENDEE, his heirs, successors and assigns, the said
furnitures, fixtures and other movable properties thereon, free from all liens and
encumbrances. (Emphasis supplied)
[35]

However, on the agreed date, Chua refused to pay the balance of the purchase price as
required by the contract to sell, the signed Deeds of Sale, and Article 1582 of the Civil
Code. Chua was therefore in default and has only himself to blame for the rescission by
Valdes-Choy of the contract to sell.
 Even if measured under existing usage or custom, Valdes-Choy had all her papers
in proper order. Article 1376 of the Civil Code provides that:

Art. 1376. The usage or custom of the place shall be borne in mind in the
interpretation of the ambiguities of a contract, and shall fill the omission of
stipulations which are ordinarily established.

Customarily, in the absence of a contrary agreement, the submission by an individual

seller to the buyer of the following papers would complete a sale of real estate: (1) owners
duplicate copy of the Torrens title;[36] (2) signed deed of absolute sale; (3) tax declaration;
and (3) latest realty tax receipt. The buyer can retain the amount for the capital gains tax
and pay it upon authority of the seller, or the seller can pay the tax, depending on the
agreement of the parties.
The buyer has more interest in having the capital gains tax paid immediately since
this is a pre-requisite to the issuance of a new Torrens title in his name. Nevertheless, as
far as the government is concerned, the capital gains tax remains a liability of the seller
since it is a tax on the sellers gain from the sale of the real estate. Payment of the capital
gains tax, however, is not a pre-requisite to the transfer of ownership to the
buyer. The transfer of ownership takes effect upon the signing and notarization of the
deed of absolute sale.
The recording of the sale with the proper Registry of Deeds[37] and the transfer of the
certificate of title in the name of the buyer are necessary only to bind third parties to the
transfer of ownership.[38] As between the seller and the buyer, the transfer of ownership
takes effect upon the execution of a public instrument conveying the real
estate.[39] Registration of the sale with the Registry of Deeds, or the issuance of a new
certificate of title, does not confer ownership on the buyer. Such registration or issuance
of a new certificate of title is not one of the modes of acquiring ownership. [40]
In this case, Valdes-Choy was ready, able and willing to submit to Chua all the papers
that customarily would complete the sale, and to pay as well the capital gains tax. On the
other hand, Chuas condition that a new TCT be first issued in his name before he pays
the balance of P10,215,000.00, representing 94.58% of the purchase price, is not
customary in a sale of real estate. Such a condition, not specified in the contract to sell
as evidenced by the Receipt, cannot be considered part of the omissions of stipulations
which are ordinarily established by usage or custom.[41] What is increasingly becoming
customary is to deposit in escrow the balance of the purchase price pending the issuance
of a new certificate of title in the name of the buyer.Valdes-Choy suggested this solution
but unfortunately, it drew no response from Chua.
Chua had no reason to fear being swindled. Valdes-Choy was prepared to turn-over
to him the owners duplicate copy of the TCT, the signed Deeds of Sale, the tax
declarations, and the latest realty tax receipt. There was no hindrance to paying the
capital gains tax as Chua himself had advanced the money to pay the same and Valdes-
Choy had procured a managers check payable to the Bureau of Internal Revenue
covering the amount. It was only a matter of time before the capital gains tax would be
paid. Chua acted precipitately in filing the action for specific performance a mere two days
after the deadline of 15 July 1989 when there was an impasse. While this case was
dismissed on 22 November 1989, he did not waste any time in re-filing the same on 29
November 1989.
Accordingly, since Chua refused to pay the consideration in full on the agreed date,
which is a suspensive condition, Chua cannot compel Valdes-Choy to consummate the
sale of the Property. Article 1181 of the Civil Code provides that -

ART. 1181. In conditional obligations, the acquisition of rights, as well as the

extinguishment or loss of those already acquired shall depend upon the happening of
the event which constitutes the condition.

Chua acquired no right to compel Valdes-Choy to transfer ownership of the Property to

him because the suspensive condition - the full payment of the purchase price - did not
happen. There is no correlative obligation on the part of Valdes-Choy to transfer
ownership of the Property to Chua. There is also no obligation on the part of Valdes-Choy
to cause the issuance of a new TCT in the name of Chua since unless expressly
stipulated, this is not one of the obligations of a vendor.
WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 37652 dated
23 February 1995 is AFFIRMED in toto.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, Ynares-Santiago, and Azcuna, JJ., concur.

[1]
In CA-G.R. CV No. 37652, dated 23 February 1995, penned by Associate Justice Artemon D. Luna with
Associate Justices Cancio C. Garcia and Godardo A. Jacinto concurring.
[2]
Civil Case No. 89-5772.
[3]
Branch 142, Makati, National Capital Judicial Region, presided by Judge Salvador P. De Guzman, Jr.
[4]
Dated 29 August 1991.
[5]
The typewritten figure 30 was corrected in ink to 15.
[6]
The italicized portions were also handwritten in ink and initialed by Chua.
[7]
Annex A, Records, p. 7.
[8]
TSN, 24 July 1990, pp. 20-28.
[9]
Exhibit 8, Records, p. 140.
[10]
TSN, 25 January 1990, p. 87.
[11]
Exhibit B, Records, pp. 107-109.
[12]
Exhibit C, Records, pp. 110-112.
[13]
Records, p. 73.
[14]
TSN, 25 January 1990, p. 226.
[15]
Exhibit 9, Records, p. 141.
[16]
TSN, 24 July 1989, p. 37.
[17]
TSN, 5 February 1990, pp. 37-38.
[18]
Rollo, pp. 71-72.
[19]
Ibid., p. 62.
[20]
Rollo, p. 60.
[21]
Ibid., p. 203.
[22]
Art. 1592. 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. After the demand, the
court may not grant him a new term.
[23]
Rivera v. Court of Appeals, G.R. No. 44111, 10 August 1989, 176 SCRA 169.
[24]
FMIC v. Court of Appeals, G.R. No. 85141, 28 November 1989, 179 SCRA 638.
[25]
Salazar v. Court of Appeals, G.R. No. 118203, 5 July 1996, 258 SCRA 317.
[26]
Philippine National Bank v. Court of Appeals, G.R. No. 119580, 26 September 1996, 262 SCRA 464.
[27]
Alfonso v. Court of Appeals, G.R. No. 63745, 8 June 1990, 186 SCRA 400.
[28]
TSN, 5 February 1990, pp. 33-34.
[29]
Salazar v. Court of Appeals, supra, see note 25.
[30]
Roque v. Lapuz, G.R. No. L-32811, 31 March 1980, 96 SCRA 741.
[31]
Alfonso v. Court of Appeals, supra, see note 27.
[32]
Rollo, pp. 60-61.
[33]
ARTURO M. TOLENTINO, CIVIL CODE OF THE PHILIPPINES, VOL. V, p. 51 (1992).
[34]
Exhibit B, Records, pp. 51-53.
[35]
Exhibit C, Records, pp. 54-54-(A).
[36]
Section 53 of PD No. 1529 provides:
Section 53. Presentation of owner's duplicate upon entry of new certificate. No voluntary instrument shall
be registered by the Register of Deeds, unless the owner's duplicate certificate is presented with
such instrument, except in cases expressly provided for in this Decree or upon order of the court,
for cause shown.
The production of the owner's duplicate certificate, whenever any voluntary instrument is presented for
registration, shall be conclusive authority from the registered owner to the Register of Deeds to
enter a new certificate or to make a memorandum of registration in accordance with such
instrument, and the new certificate or memorandum shall be binding upon the registered owner
and upon all persons claiming under him, in favor of every purchaser for value and in good faith.
x x x.
[37]
Garcia v. Court of Appeals, G.R. Nos. L-48971 and 49011, 22 January 1980, 95 SCRA 380.
[38]
Sections 51 and 52, Property Registration Decree (PD No.1529).
[39]
Sapto v. Fabiana, 103 Phil. 658 (1958); Abuyo, et al. v. De Suazo, 124 Phil.1138 (1966); Philippine
Suburban Development Corp. v. Auditor General, G.R. No. L-19545, 18 April 1975, 63 SCRA 397.
[40]
Bollozos v. Yu Tieng Su, G.R. No. L-29442, 11 November 1987, 155 SCRA 506.
[41]
Mirasol v. Yusay, et al., 120 Phil. 407 (1964).