A sad tale of no sale

Dibs Realty obtained a loan from WBC Finance.

To secure the loan, Dibs Realty mortgaged several of its properties in favor of WBC Finance. After the mortgage was duly annotated on the pertinent certificates of title, Dibs Realty entered into contracts to sell with Cay and Riv over two parcels of land subject of the mortgage.

Dibs Realty then defaulted in the payment of the mortgage loan, thus prompting WBC Finance to initiate extrajudicial foreclosure proceedings. At the auction sale, WBC had emerged as the highest bidder.

A Certificate of Sale covering the properties, together with all the buildings and improvements existing thereon, was issued in favor of WBC.

The Certificate of Sale was annotated on the corresponding titles to the properties.

Despite the annotation of the certificates of sale on the title of the properties, Dibs Realty entered into a Contract to Sell with Esie over another house and lot covered by the certificate of sale.

Soon after, the TCTs of the properties bought by WBC Finance during the auction were cancelled and new ones were issued in favor WBC. Despite this, Dibs entered into a Deed of Absolute Sale with Baldy over another property together with the improvements existing thereon.

Meanwhile, WBC, through a Deed of Absolute Sale, sold to Qia the same subject properties which were by Dibs Realty in favor of Cay, Riv, Esie, and Baldy. Accordingly, new titles were issued to respondent Qia.

Expectedly, Cay, Riv, Esie and Baldy filed a civil complaint against respondents for the Annulment of Sheriff’s Sale and Other Documents with Preliminary Injunction and/or Temporary Restraining Order.

The xomplaint alleged that Cay, Riv, Esie and Baldy were owners of the properties in question by virtue of Contracts of Sale individually executed in their favor, and that the real estate mortgage between Dibs Realty and  WBC did not include the houses, but merely referred to the lands themselves.

Thus, the inclusion of the housing units in the Deed of Sale executed by WBC in favor of Qia was allegedly illegal.

Cay and his group next challenge the validity of the foreclosure sale on the ground that the mortgage executed by the Dibs Realty and WBC was null and void. They claim that Dibs was no longer the owner of the properties it had mortgaged at the time of the execution of the mortgage contract, as they were sold under existing Contracts to Sell and Deed of Absolute Sale.

Q: Are the houses included in the real estate mortgage agreement of Dibs Realty and WBC?

A: A plain reading of the real estate mortgage, however, reveals that it covers the housing units as well. We quote the pertinent provision of the agreement:

The MORTGAGOR has transferred and conveyed and, by these presents, do hereby transfer and convey by way of FIRST MORTGAGE unto the MORTGAGEE, its successors and assigns the real properties described in the list appearing at the back of this document and/or in a supplemental document attached hereto as Annex “A” and made and integral part hereof, together with all the buildings and/or other improvements now existing or which may hereafter be place[d] or constructed thereon, all of which the MORTGAGOR hereby warrants that he is the absolute owner and exclusive possessor thereof, free from all liens and encumbrances of whatever kind and nature. xxx.

Thus, the housing units would fall under the catch-all phrase “together with all the buildings and/or other improvements now existing or which may hereafter be placed or constructed thereon.”

Q: Did the execution of the contracts to sell in favor of Cav, Riv and Esie give them preferential right over WBC?

A: No. To begin with, the Contracts to Sell and Deed of Absolute Sale could not have posed an impediment at all to the mortgage, given that these contracts had yet to materialize when the mortgage was constituted. They were all executed after the constitution and annotation of the Real Estate Mortgage.

Cav, Riv and Esie are wrong when they equated a contract to sell to a contract of sale, in which the vendor loses ownership over the property upon its delivery.

A contract to sell, standing alone, does not transfer ownership. At the point of perfection, the seller under a contract to sell does not even have the obligation to transfer ownership to the buyer. The obligation arises only when the buyer fulfills the condition: full payment of the purchase price.

In other words, the seller retains ownership at the time of the execution of the contract to sell.

In this case, there is no evidence to show that any of Cav, Riv, and Esie were able to effect full payment of the purchase price, which could have at least given rise to the obligation to transfer ownership.

Q: Does Baldy have a better right given that he and Dibs Realty executed a Deed of Absolute Sale over one of the properties?

A: No. When Dulos Realty executed a Deed of Absolute Sale covering the real property registered in favor of petitioner Baldy, it was no longer the owner of the property.

Titles to the subject properties, including the one sold to Baldy, had already been consolidated in favor of WBC. In fact, on the same date, the titles to the subject lots in the name of Dibs Realty had already been cancelled and new ones issued to WBC.

Q: Is the Deed of Absolute Sale that was executed between Baldy and Dibs Realty void given that the latter is no longer the owner of the property?

A: No. One cannot give what one does not have. Article 1459 of the Civil Code requires ownership by the seller of the thing sold at the time of delivery or consummation stage of the sale.

Hence, it is at the consummation stage where the principle of nemo dat quad non habet applies. Case law also provides that the fact that the seller is not the owner of the subject matter of the sale at the time of perfection does not make the sale void.

Hence, the lesson: for title to pass to the buyer, the seller must be the owner of the thing sold at the consummation stage or at the time of delivery of the item sold.

The seller need not be the owner at the perfection stage of the contract, whether it is of a contract to sell or a contract of sale. Ownership is not a requirement for a valid contract of sale; it is a requirement for a valid transfer of ownership.

Thus, the sale was very much valid when the Deed of Absolute Sale between Dibs Realty and Baldy was executed, even though title to the property had earlier been consolidated in favor of WBC much earlier.

The fact that Dibs Realty was no longer the owner of the property in question at the time of the sale did not affect the validity of the contract.

On the contrary, lack of title goes into the performance of a contract of sale.

It is therefore crucial to determine in this case if the seller was the owner at the time of delivery of the object of the sale.

For this purpose, it should be noted that execution of a public instrument evidencing a sale translates to delivery.  It transfers ownership of the item sold to the buyer.

Here, the delivery coincided with the perfection of the contract—The Deed of Absolute Sale covering the real property in favor of petitioner Baldy was executed. As already mentioned, Dibs Realty was no longer the owner of the property on that date.

Accordingly, it could not have validly transferred ownership of the real property it had sold to petitioner.

Thus, while there was a valid sale, there was no valid transfer of title to Baldy, since Dibs Realty was no longer the owner at the time of the execution of the Deed of Absolute Sale.

(Source: Cahayag vs. Commercial Credit Corp., G.R. No. 168078, Jan. 13, 2016)

Ma. Soledad Deriquito-Mawis is the Dean for the Lyceum of the Philippines University; chairperson of the Philippines Association of Law Schools; and Senior Partner at the  Gatchalian Castro & Mawis Law Office