Peñalosa vs.

Santos
G.R. No. 133749, 23 August 2001, SECOND DIVISION, (QUISUMBING, J.)
Savet
DOCTRINE OF THE CASE
Article 1458. By the contract of sale one of the contracting parties obligates himself to
transfer the ownership and to deliver a determinate thing, and the other to pay therefor a price
certain in money or its equivalent.

Article 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual
or constructive delivery thereof.

FACTS

Spouses Severino and Adela Santos are registered owners of a residential house and lot
located at Quezon City. Severino and Adela decided to sell their property and negotiated with
Hernando (or Henry) Peñalosa. The property was then occupied by a lessee, Eleuterio Perez,
who was given preference to buy it under the same terms offered by the buyer. Perez proposed
less favorable terms and expectedly, Severino rejected his offer.

Henry Peñalosa and Severino Santos attempted to enter into an agreement whereby the latter,
for a consideration of P1,800.000.00, would sell to the former the property subject of the instant
case. The deed of absolute sale (first deed) evidencing this transaction was signed by Henry but
not by Severino, because Henry "took time to decide" on the matter.

Thereafter, Henry and Severino executed another deed of absolute sale(second deed) for a
higher consideration of P2,000,000.00. This second deed was signed by both parties and duly
notarized. It states that Severino sells and transfers the house and lot to Henry, who had paid
the full price of P2,000,000.00. He asked for a higher price because Henry could not give the
money as soon as expected.

Henry then gave Severino P300,000.00 as "earnest money", purportedly with the understanding
that the former was to pay the balance within 60 days. Otherwise, said amount would be
forfeited in favor of Severino.

After execution of the second deed, Henry filed a loan application with the Philippine American
Life Insurance Company (Philam Life) for the amount of P2,500,000.00.

Henry wrote a letter to the lessee, Eleuterio Perez, demanding that the latter vacate the
premises within 10 days. Failing in this effort, Henry brought a complaint for ejectment against
Perez before the Office of the Barangay Captain.

Then, Philam Life informed Severino that Henry's loan application had been approved. When
Henry and Severino met with officials of Philam Life to finalize the loan/mortgage contract,
Severino refused to surrender the owner's duplicate title and insisted on being paid immediately
in cash. As a consequence, the loan/mortgage contract with Philam Life did not materialize.

Subsequently, judgment was rendered by the MTC-QC, ordering the tenant Perez to vacate and
surrender possession of the property to Henry. In said judgment, Henry was explicitly
recognized as the new owner of the property by virtue of the contract of sale, after full payment
of the purchase price of P2,000,000.00, receipt of which was duly acknowledged by Severino.
Henry and his family moved into the disputed house and lot after making repairs and
improvements. Three years after, Severino sent a letter to Henry, through counsel, demanding
that Henry vacate the house and lot, on the ground that Henry did not conclusively offer nor
tender a price certain for the purchase of the property. The letter also stated that Henry's
alleged offer and promise to buy the property has since been rejected by Severino.

When Henry refused to vacate the property, Severino brought this action for quieting of title,
recovery of possession and damages before RTC Quezon City. Severino alleged in his
complaint that there was a cloud over the title to the property, brought about by the existence of
the second deed of sale.

Severino averred that the second deed was void and inexistent because:
1. there was no cause or consideration therefor, since he did not receive the
P2,000,000.00 stated in the deed;
2. his wife, Adela, in whose name the property was titled, did not consent to the sale nor
sign the deed;
3. the deed was not registered with the Register of Deeds;
4. he did not acknowledge the deed personally before the notary public;
5. his residence certificate, as appearing in the deed, was falsified; and
6. the deed is fictitious and simulated because it was executed only for the purpose of
placing Henry in possession of the property because he tendered "earnest money".

Severino also claimed that there was no meeting of minds with respect to the cause or
consideration, since Henry's varied offers were all rejected by him.

Henry asserted that he was already the owner of the property because of the finality of
agreement. His possession of the property remained undisturbed for 3 years. He, however,
faulted the latter for the non-payment, since according to him, Severino refused to deliver the
owner's duplicate title to the financing company.

The trial court rendered judgment in favor of Severino as the contract was inexistent and void
from the beginning. Both Henry and Severino appealed the above decision to the Court of
Appeals. The appellate court affirmed the judgment of the trial court and thereafter, denied
Henry's motion for reconsideration. Thus, Henry brought this petition.

ISSUE
W/N there is a contract of sale perfected in this case.

RULING

YES. There was a perfected contract of sale due to the second deed of sale.

The basic characteristic of an absolutely simulated or fictitious contract is that the apparent
contract is not really desired or intended to produce legal effects or alter the juridical
situation of the parties in any way. However, in this case, the parties already undertook
certain acts which were directed towards fulfillment of their respective covenants under
the second deed, indicating that they intended to give effect to their agreement.
Further, the fact that Severino executed the two deeds in question, primarily so that petitioner
could eject the tenant and enter into a loan/mortgage contract with Philam Life, is to our
mind, a strong indication that he intended to transfer ownership of the property to
petitioner.
Also, the fact that in the case filed by Perez, Severino's tenant, against Severino and
Henry in 1989, assailing the validity of the sale made to Henry, Severino explicitly
asserted in his sworn answer to the complaint that the sale was a legitimate
transaction.

He further alleged that the ejectment case filed by Henry against Perez was a legitimate
action by an owner against one who refuses to turn over possession of his property. It
should be emphasized that the non-appearance of the parties before the notary public
who notarized the deed does not necessarily nullify nor render the parties' transaction void ab
initio.

The Court held previously that the provision of Article 1358 of the New Civil Code on
the necessity of a public document is only for convenience, not for validity or enforceability.
Failure to follow the proper form does not invalidate a contract. Where a contract is not in the
form prescribed by law, the parties can merely compel each other to observe that form,
once the contract has been perfected. This is consistent with the basic principle that
contracts are obligatory in whatever form they may have been entered into, provided all
essential requisites are present.

The elements of a valid contract of sale under Art. 1458 of the Civil Code are:
1. consent or meeting of the minds;
2. determinate subject matter; and
3. price certain in money or its equivalent.

In the instant case, the second deed reflects the presence of all these elements and as
such, there is already a perfected contract of sale.

The non-payment of the contract price merely results in a breach of contract for non-
performance and warrants an action for rescission or specific performance under
Article 1191 of the Civil Code.

The Court agrees with the petitioner that although the law allows rescission as a remedy for
breach of contract, the same may not be availed of by respondents in this case.

To begin with, it was Severino who prevented full payment of the stipulated price when he
refused to deliver the owner's original duplicate title to Philam Life. His refusal to cooperate was
unjustified, because as Severino himself admitted, he signed the deed precisely to enable
Henry to acquire the loan. He also knew that the property was to be given as security.

Thus, it cannot be said that Henry breached his obligation towards Severino since the former
has always been willing to and could comply with what was incumbent upon him.

In sum, the only conclusion which can be deduced from the aforesaid circumstances is
that ownership of the property has been transferred to Henry. Article 1477 of the Civil
Code states that ownership of the thing sold shall be transferred to the vendee upon the actual
or constructive delivery thereof.
It is undisputed that the property was placed in the control and possession of Henry when he
came into material possession thereof after judgment in the ejectment case. Not only was the
contract of sale perfected, but also actual delivery of the property effectively consummated the
sale.