G.R. No.

133879            November 21, 2001 As a result of the sale of the subject properties to Equatorial,
Mayfair filed a Complaint before the Regional Trial Court of
EQUATORIAL REALTY DEVELOPMENT, INC., petitioner, Manila (Branch 7) for (a) the annulment of the Deed of Absolute
vs. Sale between Carmelo and Equatorial, (b) specific performance,
MAYFAIR THEATER, INC., respondent. 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
PANGANIBAN, J.: Bauermann, Inc., et al.," was docketed as Civil Case No.
118019.
General propositions do not decide specific cases. Rather, laws
are interpreted in the context of the peculiar factual situation of On appeal (docketed as CA-GR CV No. 32918), the Court of
each proceeding. Each case has its own flesh and blood and Appeals (CA) completely reversed and set aside the judgment of
cannot be ruled upon on the basis of isolated clinical classroom the lower court.
principles.
The controversy reached this Court via G.R No. 106063. In this
While we agree with the general proposition that a contract of mother case, it denied the Petition for Review in this wise:
sale is valid until rescinded, it is equally true that ownership of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 "WHEREFORE, the petition for review of the decision of the
found by this Court in an earlier relevant Decision show that Court of Appeals, dated June 23, 1992, in CA-G.R. CV No.
delivery was not actually effected; in fact, it was prevented by a 32918, is HEREBY DENIED. The Deed of Absolute Sale
legally effective impediment. Not having been the owner, between petitioners Equatorial Realty Development, Inc. and
petitioner cannot be entitled to the civil fruits of ownership like Carmelo & Bauermann, Inc. is hereby deemed rescinded;
rentals of the thing sold. Furthermore, petitioner's bad faith, as Carmelo & Bauermann is ordered to return to petitioner
again demonstrated by the specific factual milieu of said Equatorial Realty Development the purchase price. The latter
Decision, bars the grant of such benefits. Otherwise, bad faith is directed to execute the deeds and documents necessary to
would be rewarded instead of punished. 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 Case
The foregoing Decision of this Court became final and executory
Filed before this Court is a Petition for Review1 under Rule 45 of on March 17, 1997. On April 25, 1997, Mayfair filed a Motion for
the Rules of Court, challenging the March 11, 1998 Order2 of the Execution, which the trial court granted.
Regional Trial Court of Manila (RTC), Branch 8, in Civil Case No.
97-85141. The dispositive portion of the assailed Order reads as
follows: 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
"WHEREFORE, the motion to dismiss filed by defendant P11,300,000 less; P847,000 as withholding tax. The lower court
Mayfair is hereby GRANTED, and the complaint filed by issued a Deed of Reconveyance in favor of Carmelo and a Deed
plaintiff Equatorial is hereby DISMISSED."3 of Sale in favor of Mayfair. On the basis of these documents, the
Registry of Deeds of Manila canceled Equatorial's titles and
Also questioned is the May 29, 1998 RTC Order4 denying issued new Certificates of Title7 in the name of Mayfair.
petitioner's Motion for Reconsideration.
Ruling on Equatorial's Petition for Certiorari and Petition
The Facts contesting the foregoing manner of execution, the CA in its
Resolution of November 20, 1998, explained that Mayfair had no
The main factual antecedents of the present Petition are matters right to deduct the P847,000 as withholding tax. Since Carmelo
of record, because it arose out of an earlier case decided by this could no longer be located, the appellate court ordered Mayfair
Court on November 21, 1996, entitled Equatorial Realty to deposit the said sum with the Office of the Clerk of Court,
Development, Inc. v. Mayfair Theater, Inc.5 (henceforth referred Manila, to complete the full amount of P11,300,000 to be turned
to as the "mother case"), docketed as G.R No. 106063. over to Equatorial.

Carmelo & Bauermann, Inc. ("Camelo" ) used to own a parcel of Equatorial questioned the legality of the above CA ruling before
land, together with two 2-storey buildings constructed thereon, this Court in G.R No. 136221 entitled "Equatorial Realty
located at Claro M. Recto Avenue, Manila, and covered by TCT Development, Inc. v. Mayfair Theater, Inc." In a Decision
No. 18529 issued in its name by the Register of Deeds of Manila. promulgated on May 12, 2000,8 this Court directed the trial court
to follow strictly the Decision in GR. No. 106063, the mother
On June 1, 1967, Carmelo entered into a Contract of Lease with case. It explained its ruling in these words:
Mayfair Theater Inc. ("Mayfair") for a period of 20 years. The
lease covered a portion of the second floor and mezzanine of a "We agree that Carmelo and Bauermann is obliged to return
two-storey building with about 1,610 square meters of floor area, the entire amount of eleven million three hundred thousand
which respondent used as a movie house known as Maxim pesos (P11,300,000.00) to Equatorial. On the other hand,
Theater. Mayfair may not deduct from the purchase price the amount
of eight hundred forty-seven thousand pesos (P847,000.00)
Two years later, on March 31, 1969, Mayfair entered into a as withholding tax. The duty to withhold taxes due, if any, is
second Contract of Lease with Carmelo for the lease of another imposed on the seller Carmelo and Bauermann, Inc."9
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 Meanwhile, on September 18, 1997 — barely five months after
square meters; and two store spaces on the ground floor and the Mayfair had submitted its Motion for Execution before the RTC of
mezzanine, with a combined floor area of about 300 square Manila, Branch 7 — Equatorial filed with the Regional Trial Court
meters. In that space, Mayfair put up another movie house of Manila, Branch 8, an action for the collection of a sum of
known as Miramar Theater. The Contract of Lease was likewise money against Mayfair, claiming payment of rentals or
for a period of 20 years. reasonable compensation for the defendant's use of the subject
premises after its lease contracts had expired. This action was
Both leases contained a provision granting Mayfair a right of first the progenitor of the present case.
refusal to purchase the subject properties. However, on July 30,
1978 — within the 20-year-lease term — the subject properties In its Complaint, Equatorial alleged among other things that the
were sold by Carmelo to Equatorial Realty Development, Inc. Lease Contract covering the premises occupied by Maxim
("Equatorial") for the total sum of P11,300,000, without their first Theater expired on May 31, 1987, while the Lease Contract
being offered to Mayfair. 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 Supreme Court in G.R. No. 106063, is 'void at its inception as
claimed rentals arising from Mayfair's occupation thereof. though it did not happen.'

Ruling of the RTC Manila, Branch 8 "C.

As earlier stated, the trial court dismissed the Complaint via the The Regional Trial Court likewise erred in holding that the
herein assailed Order and denied the Motion for Reconsideration aforesaid Deed of Absolute Sale, dated July 31, 1978, having
filed by Equatorial.11 been 'deemed rescinded' by the Supreme Court in G.R. No.
106063, petitioner 'is not the owner and does not have any
The lower court debunked the claim of petitioner for unpaid back right to demand backrentals from the subject property,' and that
rentals, holding that the rescission of the Deed of Absolute Sale the rescission of the Deed of Absolute Sale by the Supreme
in the mother case did not confer on Equatorial any vested or Court does not confer to petitioner 'any vested right nor any
residual proprietary rights, even in expectancy. residual proprietary rights even in expectancy.'

In granting the Motion to Dismiss, the court a quo held that the "D.
critical issue was whether Equatorial was the owner of the
subject property and could thus enjoy the fruits or rentals The issue upon which the Regional Trial Court dismissed the
therefrom. It declared the rescinded Deed of Absolute Sale as civil case, as stated in its Order of March 11, 1998, was not
avoid at its inception as though it did not happen." raised by respondent in its Motion to Dismiss.

The trial court ratiocinated as follows: "E.

"The meaning of rescind in the aforequoted decision is to set The sole ground upon which the Regional Trial Court
aside. In the case of Ocampo v. Court of Appeals, G.R. No. dismissed Civil Case No. 97-85141 is not one of the grounds of
97442, June 30, 1994, the Supreme Court held that, 'to a Motion to Dismiss under Sec. 1 of Rule 16 of the 1997 Rules
rescind is to declare a contract void in its inception and to put of Civil Procedure."
an end as though it never were. It is not merely to terminate it
and release parties from further obligations to each other but Basically, the issues can be summarized into two: (1) the
to abrogate it from the beginning and restore parties to substantive issue of whether Equatorial is entitled to back
relative positions which they would have occupied had no rentals; and (2) the procedural issue of whether the court a
contract ever been made.' 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
"Relative to the foregoing definition, the Deed of Absolute covered by Rule 16 of the Rules of Court.
Sale between Equatorial and Carmelo dated July 31, 1978
is void at its inception as though it did not happen. This Court's Ruling

"The argument of Equatorial that this complaint for back The Petition is not meritorious.
rentals 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 First Issue:
the fountain of Equatorial's all rights flows is still valid and Ownership of Subject Properties
existing.
We hold that under the peculiar facts and circumstances of the
xxx           xxx           xxx 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
"The subject Deed of Absolute Sale having been rescinded failure to deliver the property to the buyer.
by the Supreme Court, Equatorial is not the owner and does
not have any right to demand backrentals from the subject
property. . .12 Rental — a Civil
Fruit of Ownership
The trial court added: "The Supreme Court in the Equatorial
case, G.R No. 106063, has categorically stated that the Deed of To better understand the peculiarity of the instant case, let us
Absolute Sale dated July 31, 1978 has been rescinded begin with some basic parameters. Rent is a civil fruit16 that
subjecting the present complaint to res judicata."13 belongs to the owner of the property producing it17 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
Hence, the present recourse.14 rescission by final judgment should belong to the owner of the
property during that period.
Issues
By a contract of sale, "one of the contracting parties obligates
Petitioner submits, for the consideration of this Court, the himself to transfer ownership of and to deliver a determinate
following issues:15 thing and the other to pay therefor a price certain in money or its
equivalent."19
"A
Ownership of the thing sold is a real right, 20 which the buyer
The basis of the dismissal of the Complaint by the Regional acquires only upon delivery of the thing  to him "in any of the
Trial Court not only disregards basic concepts and principles in ways specified in articles 1497 to 1501, or in any other manner
the law on contracts and in civil law, especially those on signifying an agreement that the possession is transferred from
rescission and its corresponding legal effects, but also ignores the vendor to the vendee."21 This right is transferred, not merely
the dispositive portion of the Decision of the Supreme Court in by contract, but also by tradition or delivery. 22 Non nudis pactis
G.R. No. 106063 entitled 'Equatorial Realty Development, Inc. sed traditione dominia rerum transferantur. And there is said to
& Carmelo & Bauermann, Inc. vs. Mayfair Theater, Inc.' 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
"B. by law as equivalent to the delivery of the thing sold,24 such
constructive or symbolic delivery, being merely presumptive, is
The Regional Trial Court erred in holding that the Deed of deemed negated by the failure of the vendee to take actual
Absolute Sale in favor of petitioner by Carmelo & Bauermann, possession of the land sold.25
Inc., dated July 31, 1978, over the premises used and occupied
by respondent, having been 'deemed rescinded' by the
Delivery has been described as a composite act, a thing in which rescinding the sale, the right to the fruits34 belonged to, and
both parties must join and the minds of both parties concur. It is remained enforceable by, Equatorial?
an act by which one party parts with the title to and the
possession of the property, and the other acquires the right to Article 1385 of the Civil Code answers this question in the
and the possession of the same. In its natural sense, delivery negative, because "[r]escission creates the obligation to return
means something in addition to the delivery of property or title; it the things which were the object of the contract, together with
means transfer of possession.26 In the Law on Sales, delivery their fruits, and the price with its interest; x x x" Not only the land
may be either actual or constructive, but both forms of delivery and building sold, but also the rental payments paid, if any, had
contemplate "the absolute giving up of the control and custody of to be returned by the buyer.
the property on the part of the vendor, and the assumption of the
same by the vendee."27
Another point. The Decision in the mother case stated that
"Equatorial x x x has received rents" from Mayfair "during all the
Possession Never years that this controversy has been litigated." The Separate
Acquired by Petitioner Opinion of Justice Teodoro Padilla in the mother case also said
that Equatorial was "deriving rental income" from the disputed
Let us now apply the foregoing discussion to the present issue. property. Even herein ponente's Separate Concurring Opinion in
From the peculiar facts of this case, it is clear that petitioner the mother case recognized these rentals. The question now is:
never took actual control and possession of the property sold, in Do all these statements concede actual delivery?
view of respondent's timely objection to the sale and the
continued actual possession of the property. The objection took The answer is "No." The fact that Mayfair paid rentals to
the form of a court action impugning the sale which, as we know, Equatorial during the litigation should not be interpreted to mean
was rescinded by a judgment rendered by this Court in the either actual delivery or ipso facto recognition of Equatorial's title.
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 The CA Records of the mother case 35 show that Equatorial — as
passing of the property from the hands of the vendor into those alleged buyer of the disputed properties and as alleged
of the vendee.28 When there is such impediment, "fiction yields to successor-in-interest of Carmelo's rights as lessor — submitted
reality — the delivery has not been effected."29 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.
Hence, respondent's opposition to the transfer of the property by 131944 on May 28, 1990. Mayfair eventually won them both.
way of sale to Equatorial was a legally sufficient impediment that However, to be able to maintain physical possession of the
effectively prevented the passing of the property into the latter's premises while awaiting the outcome of the mother case, it had
hands. no choice but to pay the rentals.

This was the same impediment contemplated in Vda. de The rental payments made by Mayfair should not be construed
Sarmiento v. Lesaca,30 in which the Court held as follows: as a recognition of Equatorial as the new owner. They were
made merely to avoid imminent eviction. It is in this context that
"The question that now arises is: Is there any stipulation in one should understand the aforequoted factual statements in
the sale in question from which we can infer that the vendor the ponencia in the mother case, as well as the Separate
did not intend to deliver outright the possession of the lands Opinion of Mr. Justice Padilla and the Separate Concurring
to the vendee? We find none. On the contrary, it can be Opinion of the herein ponente.
clearly seen therein that the vendor intended to place the
vendee in actual possession of the lands immediately as can At bottom, it may be conceded that, theoretically, a rescissible
be inferred from the stipulation that the vendee 'takes actual contract is valid until rescinded. However, this general principle
possession thereof . . . with full rights to dispose, enjoy and is not decisive to the issue of whether Equatorial ever acquired
make use thereof in such manner and form as would be most the right to collect rentals. What is decisive is the civil law rule
advantageous to herself.' The possession referred to in the that ownership is acquired, not by mere agreement, but by
contract evidently refers to actual possession and not merely tradition or delivery. Under the factual environment of this
symbolical inferable from the mere execution of the controversy as found by this Court in the mother case, Equatorial
document. was never put in actual and effective control or possession of the
property because of Mayfair's timely objection.
"Has the vendor complied with this express commitment? she
did not. As provided in Article 1462, the thing sold shall be As pointed out by Justice Holmes, general propositions do not
deemed delivered when the vendee is placed in decide specific cases. Rather, "laws are interpreted in the
the control and possession thereof, which situation does not context of the peculiar factual situation of each case. Each case
here obtain because from the execution of the sale up to the has its own flesh and blood and cannot be decided on the basis
present the vendee was never able to take possession of the of isolated clinical classroom principles."36
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 In short, the sale to Equatorial may have been valid from
document is equivalent to delivery, this legal fiction only holds inception, but it was judicially rescinded before it could be
true when there is no impediment that may prevent the consummated. Petitioner never acquired ownership, not because
passing of the property from the hands of the vendor into the sale was void, as erroneously claimed by the trial court, but
those of the vendee. x x x."31 because the sale was not consummated by a legally
effective delivery of the property sold.
The execution of a public instrument gives rise, therefore, only to
a prima facie presumption of delivery. Such presumption is Benefits Precluded by
destroyed when the instrument itself expresses or implies that Petitioner's Bad Faith
delivery was not intended; or when by other means it is shown
that such delivery was not effected, because a third person was Furthermore, assuming for the sake of argument that there was
actually in possession of the thing. In the latter case, the sale valid delivery, petitioner is not entitled to any benefits from the
cannot be considered consummated. "rescinded" Deed of Absolute Sale because of its bad faith. This
being the law of the mother case decided in 1996, it may no
However, the point may be raised that under Article 1164 of the longer be changed because it has long become final and
Civil Code, Equatorial as buyer acquired a right to the fruits of executory. Petitioner's bad faith is set forth in the following
the thing sold from the time the obligation to deliver the property pertinent portions of the mother case:
to petitioner arose.32 That time arose upon the perfection of the
Contract of Sale on July 30, 1978, from which moment the laws "First and foremost is that the petitioners acted in bad faith to
provide that the parties to a sale may reciprocally demand render Paragraph 8 'inutile.'
performance.33 Does this mean that despite the judgment
 xxx           xxx           xxx Although it erred in its interpretation of the said Decision when it
argued that the rescinded Deed of Absolute Sale was avoid," we
"Since Equatorial is a buyer in bad faith, this finding renders hold, nonetheless, that petitioner's cause of action is indeed
the sale to it of the property in question rescissible. We agree barred by a prior judgment of this Court. As already discussed,
with respondent Appellate Court that the records bear out the our Decision in G.R No. 106063 shows that petitioner is not
fact that Equatorial was aware of the lease contracts because entitled to back rentals, because it never became the owner of
its lawyers had, prior to the sale, studied the said contracts. the disputed properties due to a failure of delivery. And even
As such, Equatorial cannot tenably claim to be a purchaser in assuming arguendo that there was a valid delivery, petitioner's
good faith, and, therefore, rescission lies. bad faith negates its entitlement to the civil fruits of ownership,
like interest and rentals.
xxx           xxx           xxx
Under the doctrine of res judicata or bar by prior judgment, a
matter that has been adjudicated by a court of competent
"As also earlier emphasized, the contract of sale between jurisdiction must be deemed to have been finally and
Equatorial and Carmelo is characterized by bad faith, since it conclusively settled if it arises in any subsequent litigation
was knowingly entered into in violation of the rights of and to between the same parties and for the same cause.40 Thus, "[a]
the prejudice of Mayfair. In fact, as correctly observed by the final judgment on the merits rendered by a court of competent
Court of Appeals, Equatorial admitted that its lawyers had jurisdiction is conclusive as to the rights of the parties and their
studied the contract of lease prior to the sale. Equatorial's privies and constitutes an absolute bar to subsequent actions
knowledge of the stipulations therein should have cautioned it involving the same claim, demand, or cause of action." 41 Res
to look further into the agreement to determine if it involved judicata is based on the ground that the "party to be affected, or
stipulations that would prejudice its own interests. some other with whom he is in privity, has litigated the same
matter in a former action in a court of competent jurisdiction, and
xxx           xxx           xxx should not be permitted to litigate it again.42

"On the part of Equatorial, it cannot be a buyer in good It frees the parties from undergoing all over again the rigors of
faith because it bought the property with notice and full unnecessary suits and repetitive trials. At the same time, it
knowledge that Mayfair had a right to or interest in the prevents the clogging of court dockets. Equally important, it
property superior to its own. Carmelo and Equatorial took stabilizes rights and promotes the rule of [email protected]
unconscientious advantage of Mayfair."37 (Italics supplied)
We find no need to repeat the foregoing disquisitions on the first
Thus, petitioner was and still is entitled solely to he return of the issue to show satisfaction of the elements of res judicata. Suffice
purchase price it paid to Carmelo; no more, no less. This Court it to say that, clearly, our ruling in the mother case bars petitioner
has firmly ruled in the mother case that neither of them is entitled from claiming back rentals from respondent. Although the court a
to any consideration of equity, as both "took unconscientious quo erred when it declared "void from inception" the Deed of
advantage of Mayfair."38 Absolute Sale between Carmelo and petitioner, our foregoing
discussion supports the grant of the Motion to Dismiss on the
In the mother case, this Court categorically denied the payment ground that our prior judgment in G.R No. 106063 has already
of interest, a fruit of ownership. By the same token, rentals, resolved the issue of back rentals.
another fruit of ownership, cannot be granted without mocking
this Court's en banc Decision, which has long become final. On the basis of the evidence presented during the hearing of
Mayfair's Motion to Dismiss, the trial court found that the issue of
Petitioner's claim of reasonable compensation for respondent's ownership of the subject property has been decided by this Court
use and occupation of the subject property from the time the in favor of Mayfair. We quote the RTC:
lease expired cannot be countenanced. If it suffered any loss,
petitioner must bear it in silence, since it had wrought that loss "The Supreme Court in the Equatorial case, G.R. No.
upon itself.  Otherwise, bad faith would be rewarded instead of 106063 has categorically stated that the Deed of
[email protected] Absolute Sale dated July 31, 1978 has been rescinded
subjecting the present complaint to res
We uphold the trial court's disposition, not for the reason it gave, judicata."43 (Emphasis in the original)
but for (a) the patent failure to deliver the property and (b)
petitioner's bad faith, as above discussed. Hence, the trial court decided the Motion to Dismiss on the basis
of res judicata, even if it erred in interpreting the meaning of
Second Issue:itc-alf "rescinded" as equivalent to "void" In short, it ruled on the ground
Ground in Motion to Dismiss raised; namely, bar by prior judgment. By granting the Motion,
it disposed correctly, even if its legal reason for nullifying the sale
Procedurally, petitioner claims that the trial court deviated from was wrong. The correct reasons are given in this Decision.
the accepted and usual course of judicial proceedings when it
dismissed Civil Case No. 97-85141 on a ground not raised in WHEREFORE, the Petition is hereby DENIED. Costs against
respondent's Motion to Dismiss. Worse, it allegedly based its petitioner.itc-alf
dismissal on a ground not provided for in a motion to dismiss as
enunciated in the Rules of [email protected] SO ORDERED.

We are not convinced A review of respondent's Motion to Davide Jr., C.J., Quisumbing, Pardo, Buena, Ynares-Santiago
Dismiss Civil Case No. 97-85141 shows that there were two and Carpio, JJ., concur.
grounds invoked, as follows: Bellosillo, J., I join the dissent of J. Gutierrez.
Melo, J., concurring opinion.
"(A) Puno, J., concur and also join the concurring opinion of J. Melo.
Vitug, J., see dissenting opinion.
Plaintiff is guilty of forum-shopping.itc-alf Kapunan, J., join the dissenting opinions of Justices Vitug and
Sandoval-Gutierrez.
Mendoza, J., concur in this and Melo, J.'s concurring opinion.
"(B) De Leon, Jr., J., join the dissenting opinion of Justice J.C. Vitug.

Plaintiff's cause of action, if any, is barred by prior

The court a quo ruled, inter alia, that the cause of action of