Tan v. Benolirao
REITERATIONFacts
The Antecedents: Spouses Lamberto and Erlinda Benolirao and Spouses Reynaldo and Norma Taningco co-owned a parcel of land in Tagaytay City. They executed a Deed of Conditional Sale with Delfin Tan for P1,378,000.00, with a P200,000.00 down payment. The contract stipulated that failure to pay the balance within the agreed period, including a grace period, would result in the forfeiture of the down payment and rescission of the sale. After the sale agreement, Lamberto Benolirao died, and his heirs executed an extrajudicial settlement. A new title was issued, which included an annotation pursuant to Section 4, Rule 74 of the Rules of Court, indicating potential liabilities to excluded heirs or creditors for two years. Procedural History: Tan failed to pay the balance of the purchase price by the extended deadline. He then claimed the annotation on the title constituted an encumbrance, justifying his non-payment and demanding the return of his down payment. When the vendors refused, Tan filed a complaint for specific performance, seeking rescission and refund or reformation of the contract. He also caused a notice of lis pendens to be annotated on the title. The vendors subsequently sold the property to a third party. The Regional Trial Court (RTC) cancelled the lis pendens annotation and, after proceedings, ruled that the forfeiture of Tan's down payment was proper, ordering him to pay attorney's fees. The Court of Appeals (CA) affirmed the RTC's decision. Tan then filed a petition for review on certiorari with the Supreme Court. The Petition: Tan petitioned the Supreme Court for review on certiorari under Rule 45 of the Rules of Court. He argued that the CA erred in affirming the cancellation of the lis pendens annotation, as his complaint sought reformation of the contract due to the encumbrance on the title. He also contended that the forfeiture of his down payment was invalid because the annotation on the title prevented the vendors from delivering a clean title, thus justifying his refusal to pay. Finally, he argued against the award of attorney's fees. The respondents countered that the petition raised only questions of fact, which are not proper under Rule 45.
Issue(s)
Whether the annotation made pursuant to Section 4, Rule 74 of the Rules of Court on a certificate of title is considered an encumbrance on the property. Whether the notice of lis pendens was properly cancelled. Whether the contract between the parties was a contract of sale or a contract to sell. Whether the forfeiture of the down payment was proper. Whether the award of attorney's fees was justified.
Ruling
The petition is granted. The decision of the Court of Appeals is annulled and set aside. The Deed of Conditional Sale is declared terminated, and the respondents are ordered to return the ₱200,000.00 down payment to petitioner Delfin Tan, subject to legal interest. Respondents are also ordered to pay ₱50,000.00 as attorney's fees. Interest at 12% per annum shall be imposed on the principal obligation and attorney's fees from the finality of the decision until full payment.
Ratio Decidendi
On the nature of the annotation: The Court held that the annotation made pursuant to Section 4, Rule 74 of the Rules of Court on TCT No. 27335, stating "any liability to creditors, excluded heirs and other persons having right to the property, for a period of two (2) years," constitutes a legal encumbrance or lien on the real property. This annotation serves to warn third persons of potential interests of excluded heirs or unpaid creditors. The Court cited Senator Vicente Francisco's commentary and jurisprudence from Vda. de Francisco v. Carreon, Sps. Domingo v. Roces, and David v. Malay to support the conclusion that such annotations create a charge on the property, even against subsequent transferees, for the two-year period. On the propriety of the lis pendens annotation: The Court ruled that the notice of lis pendens was not proper. Section 14, Rule 13 of the Rules of Court allows lis pendens only in actions affecting the title or right of possession of real property. Tan's complaint, seeking either rescission or reformation of the Deed of Conditional Sale, was an in personam action to enforce personal rights and obligations against the respondents, not an action directly involving the title or possession of the property itself. Since Tan had no claim of ownership or title yet, he had no right to annotate a lis pendens. On the nature of the contract: The Court clarified that the contract, despite being denominated as a Deed of Conditional Sale, was a mere contract to sell. This was based on paragraph D of the deed, which stated that the sellers would execute a Deed of Absolute Sale only upon the buyer's compliance with the terms and conditions, specifically the full payment of the purchase price. The Court distinguished this from a contract of sale where ownership is transferred upon delivery, emphasizing that in a contract to sell, title remains with the seller until full payment, which is a positive suspensive condition. On the forfeiture of the down payment: The Court found Tan's refusal to pay the balance to be justified due to the encumbrance on the title. By the time the balance was due, a new title with the Section 4, Rule 74 annotation had been issued, which would remain for two years. This prevented the vendors from delivering a clean title. Therefore, the vendors could no longer legally compel Tan to pay the balance. Since Tan's refusal was due to this supervening event and not his fault or negligence, the forfeiture of his down payment was unwarranted. The Court stated that the contract was terminated, not rescinded, because the suspensive condition (full payment) was not met due to circumstances beyond Tan's control. On the award of attorney's fees: The Court found no basis for the award of attorney's fees to the respondents, as Tan had a valid reason for refusing to pay. Conversely, Tan was awarded ₱50,000.00 in attorney's fees because he was compelled to litigate due to the respondents' refusal to return his down payment despite their inability to deliver a clean title. The Court also ordered the return of the ₱200,000.00 down payment with 6% legal interest from May 28, 1993 (date of first demand) and 12% interest from finality of the decision until full satisfaction.
Main Doctrine
An annotation made pursuant to Section 4, Rule 74 of the Rules of Court on a certificate of title covering real property constitutes a legal encumbrance. Consequently, a buyer is justified in refusing to pay the balance of the purchase price if the seller cannot deliver a clean title due to such an encumbrance, and the forfeiture of the down payment is unwarranted.