Vive Eagle Land, Inc. v. Genuino Ice Co., Inc.
REITERATIONFacts
The Antecedents: Spouses Raul and Rosalie Flores owned two parcels of land. They executed an Agreement to Sell with Tatic Square International Corporation (TATIC), which applied for a loan from Capital Rural Bank, Inc. (Bank) to finance the purchase. A Memorandum of Agreement (MOA) was executed by the Spouses Flores, TATIC, Isidro S. Tobias (broker), and the Bank. The Spouses Flores warranted the titles were clear of obligations. Tobias undertook to pay taxes and assessments, secure tax clearances, and remove tenants within specified periods. Expenses incurred by Tobias and TATIC were to be deducted from the purchase price. On the same day, the Spouses Flores executed a deed of absolute sale in favor of TATIC for P5,700,000.00, and turned over the titles to the Bank. Procedural History: TATIC, as vendor, and petitioner Vive Eagle Land, Inc. (VELI), as vendee, executed a deed of absolute sale on April 14, 1988, for P6,295,224.88. An addendum stipulated that TATIC warranted clear titles except for the mortgage to CAPITAL BANK, and undertook to remove occupants, failing which VELI could withhold payment. VELI assumed TATIC's loan obligation to the Bank. On November 11, 1988, VELI sold one parcel of land (TCT No. 241846) to respondent Genuino Ice Co., Inc. (Genuino) for P4,000,000.00, and executed a deed of assignment of rights. Genuino demanded payment of capital gains tax and delivery of BIR clearance, which VELI rejected. Genuino filed a complaint for specific performance and damages against VELI and its president, Virgilio Cervantes, alleging failure to transfer title, remove squatters, and pay capital gains tax. The Regional Trial Court (RTC) ruled in favor of Genuino, ordering VELI to cause the transfer of title, pay capital gains tax, and remove squatters, with a forfeiture clause. The Court of Appeals (CA) affirmed with modification, holding VELI liable for registration expenses and eviction of squatters, but deleted the order to pay capital gains tax. The Petition: Petitioners Vive Eagle Land, Inc. and Virgilio O. Cervantes seek review of the CA decision, raising issues on VELI's obligation to pay transfer expenses, capital gains tax, and eviction of squatters.
Issue(s)
Whether petitioner VELI is obliged to pay for the expenses for the transfer of the property and the issuance of titles in favor of the respondent, and whether VELI is obliged to evict the remaining squatters from the land. Whether petitioner VELI is liable for the capital gains tax for the sale between petitioner VELI and the respondent. Whether Genuino can enforce the terms and conditions of the prior deeds of sale executed by Spouses Flores, Tobias, and TATIC, and by TATIC and VELI.
Ruling
The petition is PARTIALLY GRANTED. The decision of the Court of Appeals is AFFIRMED WITH MODIFICATION. The portion mandating petitioner Vive Eagle Land, Inc. to pay capital gains tax for the November 11, 1988 sale is DELETED.
Ratio Decidendi
On the obligation to pay expenses for transfer of title and eviction of tenants: The Court affirmed the CA's ruling that petitioner VELI, as vendor, is liable for the expenses for the registration of the sale and the transfer of title to the respondent, applying Article 1487 of the New Civil Code, which states that expenses for execution and registration are borne by the vendor unless stipulated otherwise. The Court found no stipulation to the contrary in the deed of absolute sale between VELI and Genuino. Furthermore, Article 1495 of the Civil Code obliges the vendor to transfer ownership and deliver the property. While Article 1498 equates the execution of a public instrument with delivery, this does not apply if the contrary appears. In this case, the agreement that VELI would cause the eviction of tenants and deliver possession indicated that delivery was not complete upon execution of the deed, especially since tenants were present. VELI is therefore obliged to cause the eviction of tenants/occupants, as supported by the addendum allowing Genuino to withhold P300,000.00 until the property was cleared. On the liability for capital gains tax: The Court agreed with the petitioners that VELI is not liable for the capital gains tax for the third deed of sale. Under the 1977 National Internal Revenue Code (NIRC), as amended, capital gains tax on the sale of real property was imposed only on individual taxpayers, not on corporations. The sale in question occurred in 1988, when the 1977 NIRC was in effect. BIR rulings consistently held that corporations were exempt from capital gains tax, with their income from such sales treated as ordinary income. Therefore, VELI, being a corporation, was not liable for capital gains tax on the sale to Genuino. The Court noted that the CA erred in applying Section 24(d) of the 1997 NIRC, which could not be applied retroactively. Gains from such sales by corporations should be included in their ordinary income tax return under Section 24(a) of the 1977 NIRC. On the enforcement of prior deeds: The Court held that while Genuino acquired the rights and interests of TATIC and VELI through the deed of assignment, it could not enforce the terms and conditions of the prior deeds of sale executed by Spouses Flores, Tobias, and TATIC, and by TATIC and VELI. This is because there was no showing that Spouses Flores, Tobias, and TATIC conformed to the deed of assignment, nor was it registered in the Register of Deeds as required by Article 1625 of the Civil Code for enforceability against third persons. The execution of the deed of assignment did not relieve VELI of its obligation to clear the property of tenants/occupants, as evidenced by the addendum to the deed of sale between VELI and Genuino.
Main Doctrine
The vendor is liable for the expenses of registration and transfer of title unless there is a stipulation to the contrary, and is obliged to deliver possession of the property, which includes the eviction of occupants. Corporations are generally exempt from capital gains tax on the sale of real property under the 1977 NIRC, with gains treated as ordinary income.