Chua vs. Court of Appeals

10/21/2018 SUPREME COURT REPORTS ANNOTATED VOLUME 401
54 SUPREME COURT REPORTS ANNOTATED

Chua vs. Court of Appeals
*
G.R. No. 119255. April 9, 2003.
TOMAS K. CHUA, petitioner, vs. COURT OF APPEALS

and ENCARNACION VALDESCHOY, respondents.
Civil Procedure; Pleadings and Practice; Appeals; An issue not

raised in the court below cannot be raised for the first time on
appeal.—An issue not raised in the court below cannot be raised
for the first time on appeal, as this is offensive to the basic rules
of fair play, justice and due process. In addition, when a party
deliberately adopts a certain theory, and the case is tried and
decided on that theory in the court below, the party will not be
permitted to change his theory on appeal. To permit him to
change his theory will be unfair to the adverse party.
Civil Law; Contracts; Sales; Contract of Sale vs. Contract to
Sell; The distinction between a contract of sale and contract to sell
is wellsettled.—In a contract of sale, the title to the property
passes to the vendee upon the delivery of the thing sold; in a
contract to sell, ownership is, by agreement, reserved in the
vendor and is not to pass to the vendee until full payment of the
purchase price. Otherwise stated, in a contract of sale, the vendor
loses ownership over the property and cannot recover it until and
unless the contract is resolved or rescinded; whereas, in a contract
to sell, title is retained by the vendor until full payment of the
price. In the latter contract, payment of the price is a positive
suspensive condition, failure of which is not a breach but an event
that prevents the obligation of the vendor to convey title from
becoming effective.
Same; Same; Same; Earnest Money; The earnest money forms
part of the consideration only if the sale is consummated upon full
payment of the purchase price.—It is true that Article 1482 of the
Civil Code provides that “[W]henever earnest money is given in a
contract of sale, it shall be considered as part of the price and
proof of the perfection of the contract.” However, this article
speaks of earnest money given in a contract of sale. In this case,
the earnest money was given in a contract to sell. The Receipt
evidencing the contract to sell stipulates that the earnest money
is a forfeitable deposit, to be forfeited if the sale is not
consummated should Chua fail to pay the balance of the purchase
http://www.central.com.ph/sfsreader/session/0000016697271bfd065f3e73003600fb002c009e/t/?o=False 1/24
price. The earnest money forms part of the consideration only if

the sale is consummated upon full payment of the purchase price.
Same; Same; Same; It is only upon the existence of the
contract of sale that the seller becomes obligated to transfer the
ownership of the thing sold to the buyer.—It is only upon the
existence of the contract of sale that the
______________
* FIRST DIVISION.
55
VOL. 401, APRIL 9, 2003 55
seller becomes obligated to transfer the ownership of the thing

sold to the buyer. Article 1458 of the Civil Code defines a contract
of sale as follows: Art. 1458. By the contract of sale one of the
contracting parties obligates himself to transfer the ownership of
and to deliver a determinate thing, and the other to pay therefor a
price certain in money or its equivalent. x x x. (Emphasis
supplied) Prior to the existence of the contract of sale, the seller is
not obligated to transfer ownership to the buyer, even if there is a
contract to sell between them. It is also upon the existence of the
contract of sale that the buyer is obligated to pay the purchase
price to the seller. Since the transfer of ownership is in exchange
for the purchase price, these obligations must be simultaneously
fulfilled at the time of the execution of the contract of sale, in the
absence of a contrary stipulation.
Same; Same; Same; Delivery; The delivery, therefore, made in
any of the forms provided in articles 1497 to 1505 signifies that the
transmission of ownership from vendor to vendee has taken place.
—Delivery is not only a necessary condition for the enjoyment of
the thing, but is a mode of acquiring dominion and determines the
transmission of ownership, the birth of the real right. The
delivery, therefore, made in any of the forms provided in articles
1497 to 1505 signifies that the transmission of ownership from
vendor to vendee has taken place. The delivery of the thing
constitutes an indispensable requisite for the purpose of acquiring
ownership. Our law does not admit the doctrine of transfer of
property by mere consent; the ownership, the property right, is
derived only from delivery of the thing. x x x. (Emphasis supplied)
Same; Same; Same; Same; Payment of the capital gains tax,
however, is not a prerequisite to the transfer of ownership to the
lawyer.—The buyer has more interest in having the capital gains
tax paid immediately since this is a prerequisite to the issuance
of a new Torrens title in his name. Nevertheless, as far as the

government is concerned, the capital gains tax remains a liability
of the seller since it is a tax on the seller’s gain from the sale of
the real estate. Payment of the capital gains tax, however, is not a
prerequisite to the transfer of ownership to the buyer. The transfer
of ownership takes effect upon the signing and notarization of the
deed of absolute sale.
PETITION for review on certiorari of a decision of the

Court of Appeals.
The facts are stated in the opinion of the Court.

Benito Fabie for petitioner.
Reynaldo A. Ruiz for private respondent.
56

CARPIO, J.:
The Case
This is a petition
1
for review on certiorari seeking to reverse
the decision of the2 Court of Appeals in an action 3 for
specific performance filed in the Regional Trial Court by
petitioner Tomas K. Chua (“Chua”) against respondent
Encarnacion ValdesChoy (“ValdesChoy”). Chua sought to
compel ValdesChoy to consummate the sale of her
paraphernal house and lot in4 Makati City. The Court of
Appeals reversed the decision rendered by the trial court
in favor of Chua.
The Facts
ValdesChoy advertised for sale her paraphernal house and

lot (“Property”) with an area of 718 square meters located
at No. 40 Tampingco Street comer Hidalgo Street, San
Lorenzo Village, Makati City. The Property is covered by
Transfer Certificate of Title No. 162955 (“TCT”) issued by
the Register of Deeds of Makati City in the name of Valdes
Choy. Chua responded to the advertisement. After several
meetings, Chua and ValdesChoy agreed on a purchase
price of P10,800,000.00 payable in cash.
On 30 June 1989, ValdesChoy received from Chua a
check for P100,000.00. The receipt (“Receipt”) evidencing
the transaction, signed by ValdesChoy as seller, and Chua
as buyer, reads:
30 June 1989
RECEIPT
RECEIVED from MR. TOMAS K. CHUA PBCom

Check No. 206011 in the amount of ONE HUNDRED
THOUSAND PESOS ONLY (P100,000.00) as
EARNEST MONEY for the sale of the property located
at 40 Tampingco cor. Hidalgo, San Lorenzo Village,
Makati, Metro Manila (Area : 718 sq. meters).
______________
1 In CAG.R. CV No. 37652, dated 23 February 1995, penned by

Associate Justice Artemon D. Luna with Associate Justices Cancio C.
Garcia and Godardo A. Jacinto concurring.
2 Civil Case No. 895772.
3 Branch 142, Makati, National Capital Judicial Region, presided
by Judge Salvador P. De Guzman, Jr.
4 Dated 29 August 1991.
57
VOL. 401, APRIL 9, 2003 57

The balance of TEN MILLION SEVEN HUNDRED

THOUSAND
5
(P10,700,000.00) is payable on or before
15 July 1989. Capital Gains Tax for the account of the
seller. Failure to pay balance on or before 15 July 1989
forfeits the earnest money.6
This provided that all
papers are in proper order.
CONFORME: ENCARNACION VALDES
Seller
TOMAS K. CHUA
Buyer
7
x x x.
In the morning of 13 July 1989, Chua secured from

Philippme Bank of Commerce (“PBCom”) a manager’s
check for P480,000.00. Strangely, after securing the
manager’s check, Chua immediately gave PBCom a verbal
stop payment order claiming that this manager’s
8
check for
P480,000.00 “was lost and/or misplaced.” On the same day,
after receipt of Chua’s verbal order, PBCom Assistant
9
Vice
President Julie C. Pe notified in writing the PBCom
Operations Group of Chua’s stop payment order.
In the afternoon of 13 July 1989, Chua and ValdesChoy
met with their respective counsels to execute
10
the necessary
documents and arrange the payments. ValdesChoy as
vendor and Chua as vendee signed two Deeds of Absolute
Sale (“Deeds of Sale”). The first Deed of Sale covered the
11
11
house and lot for the purchase price of P8,000,000.00. The
second Deed of Sale covered the furnishings, fixtures and
movable properties contained
12
in the house for the purchase
price of P2,800,000.00. The parties also computed the
capital gains tax to amount to P485,000.00.
On 14 July 1989, the parties met again at the office of
ValdesChoy’s counsel. Chua handed to ValdesChoy the
PBCom manager’s check for P485,000.00 so ValdesChoy
could pay the capital
______________
5 The typewritten figure “30” was corrected in ink to “15”.

6 The italicized portions were also handwritten in ink and initialed by
Chua.
7 Annex “A,” Records, p. 7.
8 TSN, 24 July 1990, pp. 2028.
9 Exhibit “8,” Records, p. 140.
10 TSN, 25 January 1990, p. 87.
11 Exhibit “B,” Records, pp. 107109.
12 Exhibit “C,” Records, pp. 110112.
58

gains tax as she did not have sufficient funds to pay the
tax. ValdesChoy issued a receipt showing that Chua had a
remaining balance of P10,215,000.00 after deducting the
advances made by Chua. This receipt reads:
July 14, 1989
Received from MR. TOMAS K. CHUA PBCom. Check No. 325851

in the amount of FOUR HUNDRED EIGHTY FIVE THOUSAND
PESOS ONLY (P485,000.00) as Partial Payment for the sale of
the property located at 40 Tampingco Cor. Hidalgo St., San
Lorenzo Village, Makati, Metro Manila (Area 718 sq. meters),
covered by TCT No. 162955 of the Registry of Deeds of Makati,
Metro Manila.
The total purchase price of the abovementioned property is
TEN MILLION EIGHT HUNDRED THOUSAND PESOS only,
broken down as follows:
SELLING PRICE P10,800,000.00

EARNEST MONEY P100,000.00
PARTIAL PAYMENT 485,000.00
585,000.00
BALANCE DUE TO
ENCARNACION VALDEZCHOY P10,215,000.00
PLUS P80,000.00 for documentary

stamps paid in advance by seller 80,000.00
P10,295,000.00
13
x x x.
On the same day, 14 July 1989, ValdesChoy, accompanied

by Chua, deposited the P485,000.00 manager’s check to her
account with Traders Royal Bank, She then purchased a
Traders Royal Bank manager’s check for P480,000.00
payable to the Commissioner of Internal Revenue for the
capital gains tax. ValdesChoy and Chua returned to the
office of ValdesChoy’s counsel and handed the Traders
Royal Bank check to the counsel who undertook to pay the
capital gains tax. It was then also that Chua showed to
ValdesChoy a PBCom manager’s check for P10,215,000.00
representing the balance of the purchase price. Chua,
however, did not give this PBCom manager’s check to
ValdesChoy because the TCT was still registered in the
name of Val
______________
13 Records, p. 73.
59
VOL. 401, APRIL 9, 2003 59

desChoy. Chua required that the Property be registered

first in his name before he would turn over the check to
ValdesChoy. This angered ValdesChoy who tore up the
Deeds of Sale, claiming14that what Chua required was not
part of their agreement.
On the same day, 14 July 1989, Chua confirmed his stop
payment
15
order by submitting to PBCom an affidavit of
loss of the PBCom Manager’s Check for P480,000.00.
PBCom Assistant VicePresident Pe, however, testified
that the manager’s check was nevertheless honored
because Chua subsequently verbally advised the bank that
he was lifting the stoppayment
16
order due to his “special
arrangement” with the bank.
On 15 July 1989, the deadline for the payment of the
balance of the purchase price, ValdesChoy suggested to
her counsel that to break the impasse 17Chua should deposit
in escrow the P10,215,000.00 balance. Upon such deposit,
ValdesChoy was willing to cause the issuance of a new
TCT in the name of Chua even without receiving the
balance of the purchase price. ValdesChoy believed this
was the only way she could protect herself if the certificate
of title is transferred in the name of the buyer before she is

fully paid. ValdesChoy’s counsel promised to relay her
suggestion to Chua and his counsel, but nothing came out
of it.
On 17 July 1989, Chua filed a complaint for specific
performance against ValdesChoy which the trial court
dismissed on 22 November 1989. On 29 November 1989,
Chua refiled his complaint for specific performance with
damages. After trial in due course, the trial court rendered
judgment in favor of Chua, the dispositive portion of which
reads:
“Applying the provisions of Article 1191 of the new Civil Code,

since this is an action for specific performance where the plaintiff,
as vendee, wants to pursue the sale, and in order that the fears of
the defendant may be allayed and still have the sale materialize,
judgment is hereby rendered:
I. 1. Ordering the defendant to deliver to the Court not later

than five (5) days from finality of this decision:
______________
14 TSN, 25 January 1990, p. 226.

15 Exhibit “9,” Records, p. 141.
16 TSN, 24 July 1989, p. 37.
17 TSN, 5 February 1990, pp. 3738.
60

a. the owner’s duplicate copy of TCT No. 162955

registered in her name;
b. the covering tax declaration and the latest tax
receipt evidencing payment of real estate taxes;
c. the two deeds of sale prepared by Atty. Mark
Bocobo on July 13, 1989, duly executed by
defendant in favor of the plaintiff, whether
notarized or not; and
2. Within five (5) days from compliance by the

defendant of the above, ordering the plaintiff to
deliver to the Branch Clerk of Court of this Court
the sum of P10,295,000.00 representing the balance
of the consideration (with the sum of P80,000.00 for
stamps already included);
3. Ordering the Branch Clerk of this Court or her duly
authorized representative:
a. to make representations with the BIR for the

payment of capital gains tax for the sale of the
house and lot (not to include the fixtures) and to
pay the same from the funds deposited with her;
b. to present the deed of sale executed in favor of the
plaintiff, together with the owner’s duplicate copy of
TCT No. 162955, real estate tax receipt and proof of
payment of capital gains tax, to the Makati Register
of Deeds;
c. to pay the required registration fees and stamps (if
not yet advanced by the defendant) and if needed
update the real estate taxes all to be taken from the
funds deposited with her; and
d. surrender to the plaintiff the new Torrens title over
the property;
4. Should the defendant fail or refuse to surrender the

two deeds of sale over the property and the fixtures
that were prepared by Atty. Mark Bocobo and
executed by the parties, the Branch Clerk of Court
of this Court is hereby authorized and empowered
to prepare, sign and execute the said deeds of sale
for and in behalf of the defendant;
5. Ordering the defendant to pay to the plaintiff;
a. the sum of P100,000.00 representing moral and

compensatory damages for the plaintiff; and
b. the sum of P50,000.00 as reimbursement for
plaintiffs attorney’s fees and cost of litigation.
6. Authorizing the Branch Clerk of Court of this Court

to release to the plaintiff, to be taken from the
funds said plaintiff has deposited with the Court,
the amounts covered at paragraph 5 above;
7. Ordering the release of the P10,295,000.00 to the
defendant after deducting therefrom the following
amounts:
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VOL. 401, APRIL 9, 2003 61

a. the capital gains tax paid to the BIR;

b. the expenses incurred in the registration of the sale,
updating of real estate taxes, and transfer of title; and
c. the amounts paid under this judgment to the plaintiff.
8. Ordering the defendant to surrender to the plaintiff or his

representatives the premises with the furnishings intact
within seventytwo (72) hours from receipt of the proceeds
of the sale;
9. No interest is imposed on the payment to be made by the
plaintiff because he had always been ready to pay the
balance and the premises had been used or occupied by
the defendant for the duration of this case.
II. In the event that specific performance cannot be done for

reasons or causes not attributable to the plaintiff,
judgment is hereby rendered ordering the defendant:
1. To refund to the plaintiff the earnest money in the sum of

P100,000.00, with interest at the legal rate from June 30,
1989 until fully paid;
2. To refund to the plaintiff the sum of P485,000.00 with
interest at the legal rate from July 14, 1989 until fully
paid;
3. To pay to the plaintiff the sum of P700,000.00 in the
concept of moral damages and the additional sum of
P300,000.00 in the concept of exemplary damages; and
4. To pay to the plaintiff the sum of P100,000.00 as
reimbursement of attorney’s fees and cost of litigation.
18
SO ORDERED.”
ValdesChoy appealed to the Court of Appeals which

reversed the decision of the trial court. The Court of
Appeals handed down a new judgment, disposing as
follows:
“WHEREFORE, the decision appealed from is hereby REVERSED

and SET ASIDE, and another one is rendered:
(1) Dismissing Civil Case No. 895772;

(2) Declaring the amount of P100,000.00, representing
earnest money as forfeited in favor of defendantappellant;
(3) Ordering defendantappellant to return/refund the
amount of P485,000.00 to plaintiffappellee without
interest;
(4) Dismissing defendantappellant’s compulsory counter
claim; and
______________
18 Rollo, pp. 7172.
62

19
(5) Ordering the plaintiffappellee to pay the costs.”
Hence, the instant petition.
The Trial Court’s Ruling
The trial court found that the transaction reached an

impasse when ValdesChoy wanted to be first paid the full
consideration before a new TCT covering the Property is
issued in the name of Chua. On the other hand, Chua did
not want to pay the consideration in full unless a new TCT
is first issued in his name. The trial court faulted Valdes
Choy for this impasse.
The trial court held that the parties entered into a
contract to sell on 30 June 1989, as evidenced by the
Receipt for the P100,000.00 earnest money. The trial court
pointed out that the contract to sell was subject to the
following conditions: (1) the balance of P10,700,000.00 was
payable not later than 15 July 1989; (2) ValdesChoy may
stay in the Property until 13 August 1989; and (3) all
papers must be “in proper order” before full payment is
made.
The trial court held that Chua complied with the terms
of.the contract to sell. Chua showed that he was prepared
to pay ValdesChoy the consideration in full on 13 July
1989, two days before the deadline of 15 July 1989. Chua
even added P80,000.00 for the documentary stamp tax. He
purchased from PBCom two manager’s checks both payable
to ValdesChoy. The first check for P485,000.00 was to pay
the capital gains tax. The second check for P10,215,000.00
was to pay the balance of the purchase price. The trial
court was convinced that Chua demonstrated his capacity
and readiness to pay the balance on 13 July 1989 with the
production of the PBCom manager’s check for
P10,215,000.00.
On the other hand, the trial court found that Valdes
Choy did not perform her correlative obligation under the
contract to sell to put all the papers in order. The trial
court noted that as of 14 July 1989, the capital gains tax
had not been paid because ValdesChoy’s counsel who was
supposed to pay the tax did not do so. The trial court
declared that ValdesChoy was in a position to deliver only
the owner’s duplicate copy of the TCT, the signed Deeds of
Sale, the tax declarations, and the latest realty tax receipt.
The
______________
19 Ibid., p. 62.
63
VOL. 401, APRIL 9, 2003 63

trial court concluded that these documents were all useless

without the Bureau of Internal Revenue receipt evidencing
full payment of the capital gains tax which is a pre
requisite to the issuance of a new certificate of title in
Chua’s name.
The trial court held that Chua’s nonpayment of the
balance of P10,215,000.00 on the agreed date was due to
ValdesChoy’s fault.
The Court of Appeals’ Ruling
In reversing the trial court, the Court of Appeals ruled that

Chua’s stance to pay the full consideration only after the
Property is registered in his name was not the agreement
of the parties. The Court of Appeals noted that there is a
whale of difference between the phrases “all papers are in
proper order” as written on the Receipt, and “transfer of
title” as demanded by Chua.
Contrary to the findings of the trial court, the Court of
Appeals found that all the papers were in order and that
Chua had no valid reason not to pay on the agreed date.
ValdesChoy was in a position to deliver the owner’s
duplicate copy of the TCT, the signed Deeds of Sale, the tax
declarations, and the latest realty tax receipt. The Property
was also free from all liens and encumbrances.
The Court of Appeals declared that the trial court erred
in considering Chua’s showing to ValdesChoy of the
PBCom manager’s check for P10,215,000.00 as compliance
with Chua’s obligation to pay on or before 15 July 1989.
The Court of Appeals pointed out that Chua did not want
to give 20
up the check unless “the property was already in his
name.” Although Chua demonstrated his capacity to pay,
this could not be equated with actual payment which he
refused to do.
The Court of Appeals did not consider the nonpayment
of the capital gains tax as failure by ValdesChoy to put the
papers “in proper order.” The Court of Appeals explained
that the payment of the capital gains tax has no bearing on
the validity of the Deeds of Sale. It is only after the deeds
are signed and notarized can the final computation and
payment of the capital gains tax be made.
The Issues
In his Memorandum, Chua raises the following issues:

______________
20 Rollo, p. 60.
64

1. WHETHER THERE IS A PERFECTED

CONTRACT OF SALE OF IMMOVABLE
PROPERTY;
2. WHETHER VALDESCHOY MAY RESCIND THE
CONTRACT IN CONTROVERSY WITHOUT
OBSERVING THE PROVISIONS OF ARTICLE
1592 OF THE NEW CIVIL CODE;
3. WHETHER THE WITHHOLDING OF PAYMENT
OF THE BALANCE OF THE PURCHASE PRICE
ON THE PART OF CHUA (AS VENDEE) WAS
JUSTIFIED BY THE CIRCUMSTANCES
OBTAINING AND MAY NOT BE RAISED AS
GROUND FOR THE AUTOMATIC RESCISSION
OF THE CONTRACT OF SALE;
4. WHETHER THERE IS LEGAL AND FACTUAL
BASIS FOR THE COURT OF APPEALS TO
DECLARE THE “EARNEST MONEY” IN THE
AMOUNT OF P100,000.00 AS FORFEITED IN
FAVOR OF VALDESCHOY;
5. WHETHER THE TRIAL COURT’S JUDGMENT IS
IN ACCORD WITH LAW, REASON AND EQUITY
DESERVING21 OF BEING REINSTATED AND
AFFIRMED.
The issues for our resolution are: (a) whether the

transaction between Chua and ValdesChoy is a perfected
contract of sale or a mere contract to sell, and (b) whether
Chua can compel ValdesChoy to cause the issuance of a
new TCT in Chua’s name even before payment of the full
purchase price.
The Court’s Ruling
The petition is bereft of merit.

There is no dispute that ValdesChoy is .the absolute
owner of the Property which is registered in her name
under TCT No. 162955, free from all liens and
encumbrances. She was ready, able and willing to deliver
to Chua the owner’s duplicate copy of the TCT, the signed
Deeds of Sale, the tax declarations, and the latest realty
tax receipt. There is also no dispute that on 13 July 1989,
ValdesChoy received PBCom Check No. 206011 for

P100,000.00 as earnest money from Chua. Likewise, there
is no controversy that the Receipt for the P100,000.00
earnest money embodied the terms of the binding contract
between ValdesChoy and Chua.
Further, there is no controversy that as embodied in the
Receipt, ValdesChoy and Chua agreed on the following
terms: (1) the balance of P10,215,000.00 is payable on or
before 15 July 1989; (2) the
______________
21 Ibid., p. 203.
65
VOL. 401, APRIL 9, 2003 65

capital gains tax is for the account of ValdesChoy; and (3)

if Chua fails to pay the balance of P10,215,000.00 on or
before 15 July 1989, ValdesChoy has the right to forfeit
the earnest money, provided that “all papers are in proper
order.” On 13 July 1989, Chua gave ValdesChoy the
PBCom manager’s check for P485,000.00 to pay the capital
gains tax.
Both the trial and appellate courts found that the
balance of P10,215,000.00 was not actually paid to Valdes
Choy on the agreed date. On 13 July 1989, Chua did show
to ValdesChoy the PBCom manager’s check for
P10,215,000.00, with ValdesChoy as payee. However,
Chua refused to give this check to ValdesChoy until a new
TCT covering the Property is registered in Chua’s name.
Or, as the trial court put it, until there is proof of payment
of the capital gains tax which is a prerequisite to the
issuance of a new certificate of title.
First and Second Issues: Contract of Sale or Contract

to Sell?
Chua has consistently characterized his agreement with

ValdezChoy, as evidenced by the Receipt, as a contract to
sell and not a contract of sale. This has been Chua’s
persistent contention in his pleadings before the trial and
appellate courts.
Chua now pleads for the first time that there is a
perfected contract of sale rather than a contract to sell. He
contends that there was no reservation in the contract of
sale that ValdesChoy shall retain title to the Property
until after the sale. There was no agreement for an
automatic rescission of the contract in case of Chua’s
default. He argues for the first time that his payment of

earnest money and its acceptance by ValdesChoy
precludes the latter from rejecting the binding effect of the
contract of sale. Thus, Chua claims that ValdesChoy may
not validly rescind
22
the contract of sale without following
Article 1592 of the Civil Code which requires demand,
either judicially or by notarial act, before rescission may
take place.
______________
22 Art. 1592. In the sale of immovable property, even though it may

have been stipulated that upon failure to pay the price at the time agreed
upon the rescission of the contract shall of right take place, the vendee
may pay, even after the expiration of the period, as long as no demand for
rescission of the contract has been made upon him either judicially or by a
notarial act. After the demand, the court may not grant him a new term.
66

Chua’s new theory is not well taken in light of wellsettled

jurisprudence. An issue not raised in the court below
cannot be raised for the first time on appeal, as this is
offensive23 to the basic rules of fair play, justice and due
process. In addition, when a party deliberately adopts a
certain theory, and the case is tried and decided on that
theory in the court below, the party will not be permitted to
change his theory on appeal. To permit him 24
to change his
theory will be unfair to the adverse party.
Nevertheless, in order to put to rest all doubts on the
matter, we hold that the agreement between Chua and
ValdesChoy, as evidenced by the Receipt, is a contract to
sell and not a contract of sale. The distinction between a
contract of sale and contract to sell is wellsettled:
In a contract of sale, the title to the property passes to the vendee

upon the delivery of the thing sold; in a contract to sell, ownership
is, by agreement, reserved in the vendor and is not to pass to the
vendee until full payment of the purchase price. Otherwise stated,
in a contract of sale, the vendor loses ownership over the property
and cannot recover it until and unless the contract is resolved or
rescinded; whereas, in a contract to sell, title is retained by the
vendor until full payment of the price. In the latter contract,
payment of the price is a positive suspensive condition, failure of
which is not a breach but an event that prevents the obligation of
25
the vendor to convey title from becoming effective.
A perusal of the Receipt shows that the true agreement

between the parties was a contract to sell. Ownership over
the Property was retained by ValdesChoy and was not to

pass to Chua until full payment of the purchase price.
First, the Receipt provides that the earnest money shall
be forfeited in case the buyer fails to pay the balance of the
purchase price on or before 15 July 1989. In such event,
ValdesChoy can sell the Property to other interested
parties. There is in effect a right reserved in favor of
ValdesChoy not to push through with the sale upon Chua’s
failure to remit the balance of the purchase price
______________
23 Rivera v. Court of Appeals, G.R. No. 44111, 10 August 1989, 176

SCRA 169.
24 FMIC v. Court of Appeals, G.R. No. 85141, 28 November 1989, 179
SCRA 638.
25 Salazar v. Court of Appeals, G.R. No. 118203, 5 July 1996, 258 SCRA
317.
67
VOL. 401, APRIL 9, 2003 67

before the deadline. This is in the nature of a stipulation

reserving ownership in the seller until full payment of the
purchase price. This is also similar to giving the seller the
right to rescind unilaterally the contract26
the moment the
buyer fails to pay within a fixed period.
Second, the agreement between Chua and ValdesChoy
was embodied in a receipt rather than in a deed of sale,
ownership not having passed between them. The signing of
the Deeds of Sale came later when ValdesChoy was under
the impression that Chua was about to pay the balance of
the purchase price. The absence of a formal deed of
conveyance is a strong indication that the parties did not
intend immediate transfer of ownership,27but only a transfer
after full payment of the purchase price.
Third, ValdesChoy retained possession of the certificate
of title and all other documents relative to the sale. When
Chua refused to pay ValdesChoy the balance of the
purchase price, ValdesChoy
28
also refused to turnover to
Chua these documents. These are additional proof that
the agreement did not transfer to Chua, either by 29
actual or
constructive delivery, ownership of the Property.
It is true that Article 1482 of the Civil Code provides
that “[W]henever earnest money is given in a contract of
sale, it shall be considered as part of the price and proof of
the perfection of the contract.” However, this article speaks
of earnest money given in a contract of sale. In this case,
the earnest money was given in a contract to sell. The
Receipt evidencing the contract to sell stipulates that the

earnest money is a forfeitable deposit, to be forfeited if the
sale is not consummated should Chua fail to pay the
balance of the purchase price. The earnest money forms
part of the consideration only if the sale is consummated
upon full payment of the purchase price. If there is a
contract of sale, ValdesChoy should have the right to
compel Chua to pay the balance of the purchase price.
Chua, however, has the right to walk away from the
transaction, with no obligation to pay the balance, although
he will forfeit the earnest money. Clearly, there is no
contract of sale. The ear
______________
26 Philippine National Bank v. Court of Appeals, G.R. No. 119580, 26

September 1996, 262 SCRA 464.
27 Alfonso v. Court of Appeals, G.R. No. 63745, 8 June 1990, 186 SCRA
400.
28 TSN, 5 February 1990, pp. 3334.
29 Salazar v. Court of Appeals, supra, see note 25.
68

nest money was given in a contract to sell, and thus Article

1482, which speaks of a contract of sale, is not applicable.
Since the agreement between ValdesChoy and Chua is
a mere contract to sell, the full payment of the purchase
price partakes of a suspensive condition. The non
fulfillment of the condition prevents the obligation to sell
from arising and ownership is retained 30
by the seller
without further remedies by the buyer. Article 1592 of the
Civil Code permits the buyer to pay, even after the
expiration of the period, as long as no demand for
rescission of the contract has been made upon him either
judicially or by notarial act. However, Article 1592 does not
apply to a contract to sell where the seller
31
reserves the
ownership until full payment of the price.
Third and Fourth Issues: Withholding of Payment of

the Balance
of the Purchase Price and Forfeiture of the Earnest
Money
Chua insists that he was ready to pay the balance of the

purchase price but withheld payment because ValdesChoy
did not fulfill her contractual obligation to put all the
papers in “proper order.” Specifically, Chua claims that
ValdesChoy failed to show that the capital gains tax had

been paid after he had advanced the money for its
payment. For the same reason, he contends that Valdes
Choy may not forfeit the earnest money even if he did not
pay on time.
There is a variance of interpretation on the phrase “all
papers are in proper order” as written in the Receipt. There
is no dispute though, that as long as the papers are “in
proper order,” ValdesChoy has the right to forfeit the
earnest money if Chua fails to pay the balance before the
deadline.
The trial court interpreted the phrase to include
payment of the capital gains tax, with the Bureau of
Internal Revenue receipt as proof of payment. The Court of
Appeals held otherwise. We quote verbatim the ruling of
the Court of Appeals on this matter:
The trial court made much fuss in connection with the payment of
the capital gains tax, of which Section 33 of the National Internal
Revenue Code of 1977, is the governing provision insofar as its
computation is concerned. The trial court failed to consider
Section 34(a) of the said Code,
______________
30 Roque v. Lapuz, G.R. No. L32811, 31 March 1980, 96 SCRA 741.

31 Alfonso v. Court of Appeals, supra, see note 27.
69
VOL. 401, APRIL 9, 2003 69

the last sentence of which provides, that “[t]he amount realized

from the sale or other disposition of property shall be the sum of
money received plus the fair market value of the property (other
than money) received;” and that the computation of the capital
gains tax can only be finally assessed by the Commission on
Internal Revenue upon the presentation of the Deeds of Absolute
Sale themselves, without which any premature computation of
the capital gains tax becomes of no moment. At any rate, the
computation and payment of the capital gains tax has no bearing
insofar as the validity and effectiveness of the deeds of sale in
question are concerned, because it is only after the contracts of
sale are finally executed in due form and have been duly
notarized that the final computation of the capital gains tax can
follow as a matter of course. Indeed, exhibit “D”, the PBC Check
No. 325851, dated July 13, 1989, in the amount of P485,000.00,
which is considered as part of the consideration of the sale, was
deposited in the name of appellant, from which she in turn,
purchased the corresponding check in the amount representing
the sum to be paid for capital gains tax and drawn in the name of
the Commissioner of Internal Revenue, which then allayed any

fear or doubt that that amount would not be paid to the
32
Government after all.
We see no reason to disturb the ruling of the Court of

Appeals.
In a contract to sell, the obligation of the seller to sell
becomes demandable only upon the happening of the
suspensive condition. In this case, the suspensive condition
is the full payment of the purchase price by Chua. Such full
payment gives rise to Chua’s right to demand the execution
of the contract of sale.
It is only upon the existence of the contract of sale that
the seller becomes obligated to transfer the ownership of
the thing sold to the buyer. Article 1458 of the Civil Code
defines a contract of sale as follows:
Art. 1458. By the contract of sale one of the contracting parties

obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor a price certain in
money or its equivalent.
x x x. (Emphasis supplied)
Prior to the existence of the contract of sale, the seller is

not obligated to transfer ownership to the buyer, even if
there is a contract to sell between them. It is also upon the
existence of the contract of sale that the buyer is obligated
to pay the purchase price to the
______________
32 Rollo, pp. 6061.
70

seller. Since the transfer of ownership is in exchange for

the purchase price, these obligations must be
simultaneously fulfilled at the time of the execution of the
contract of sale, in the absence of a contrary stipulation.
In a contract of sale, the obligations of the seller are
specified in Article 1495 of the Civil Code, as follows:
Art. 1495. The vendor is bound to transfer the ownership of and

deliver, as well as warrant the thing which is the object of the
sale. (Emphasis supplied)
The obligation of the seller is to transfer to the buyer

ownership of the thing sold. In the sale of real property, the
seller is not obligated to transfer in the name of the buyer a
new certificate of title, but rather to transfer ownership of
the real property. There is a difference between transfer of

the certificate of title in the name of the buyer, and
transfer of ownership to the buyer. The buyer may become
the owner of the real property even if the certificate of title
is still registered in the name of the seller. As between the
seller and buyer, ownership is transferred not by the
issuance of a new certificate of title in the name of the
buyer but by the execution of the instrument of sale in a
public document.
In a contract of sale, ownership is transferred upon
delivery of the thing sold. As the noted civil law
commentator Arturo M. Tolentino explains it,—
Delivery is not only a necessary condition for the enjoyment of the

thing, but is a mode of acquiring dominion and determines the
transmission of ownership, the birth of the real right. The
delivery, therefore, made in any of the forms provided in articles
1497 to 1505 signifies that the transmission of ownership from
vendor to vendee has taken place. The delivery of the thing
constitutes an indispensable requisite for the purpose of acquiring
ownership. Our law does not admit the doctrine of transfer of
property by mere consent; the ownership, the property right, is
33
derived only from delivery of the thing. x x x. (Emphasis
supplied)
In a contract of sale of real property, delivery is effected

when the instrument of sale is executed in a public
document. When the deed of absolute sale is signed by the
parties and notarized, then
______________
33 ARTURO M. TOLENTINO, CIVIL CODE OF THE PHILIPPINES,

VOL. V, p. 51 (1992).
71
VOL. 401, APRIL 9, 2003 71

delivery of the real property is deemed made by the seller

to the buyer. Article 1498 of the Civil Code provides that—
Art. 1498. When the sale is made through a public instrument,

the execution thereof shall be equivalent to the delivery of the
thing which is the object of the contract, if from the deed the
contrary does not appear or cannot clearly be inferred.
x x x.
Similarly, in a contract to sell real property, once the seller

is ready, able and willing to sign the deed of absolute sale
before a notary public, the seller is in a position to transfer
ownership of the real property to the buyer. At this point,

the seller complies with his undertaking to sell the real
property in accordance with the contract to sell, and to
assume all the obligations of a vendor under a contract of
sale pursuant to the relevant articles of the Civil Code. In a
contract to sell, the seller is not obligated to transfer
ownership to the buyer. Neither is the seller obligated to
cause the issuance of a new certificate of title in the name
of the buyer. However, the seller must put all his papers in
proper order to the point that he is in a position to transfer
ownership of the real property to the buyer upon the
signing of the contract of sale.
In the instant case, ValdesChoy was in a position to
comply with all her obligations as a seller under the
contract to sell. First, she already signed the Deeds of Sale
in the office of her counsel in the presence of the buyer.
Second, she was prepared to turnover the owner’s
duplicate of the TCT to the buyer, along with the tax
declarations and latest realty tax receipt. Clearly, at this
point ValdesChoy was ready, able and willing to transfer
ownership of the Property to the buyer as required by the
contract to sell, and by Articles 1458 and 1495 of the Civil
Code to consummate the contract of sale.
Chua, however, refused to give to ValdesChoy the
PBCom manager’s check for the balance of the purchase
price. Chua imposed the condition that a new TCT should
first be issued in his name, a condition that is found
neither in the law nor in the contract to sell as evidenced
by the Receipt. Thus, at this point Chua was not ready,
able and willing to pay the full purchase price which is his
obligation under the contract to sell. Chua was also not in a
position to assume the principal obligation of a vendee in a
contract of
72

sale, which is also to pay the full purchase price at the

agreed time. Article 1582 of the Civil Code provides that—
Art. 1582. The vendee is bound to accept delivery and to pay the
price of the thing sold at the time and place stipulated in the
contract.
x x x. (Emphasis supplied)
In this case, the contract to sell stipulated that Chua

should pay the balance of the purchase price “on or before
15 July 1989.” The signed Deeds of Sale also stipulated
that the buyer shall pay the balance of the purchase price
upon signing of the deeds. Thus, the Deeds of Sale, both

signed by Chua, state as follows:
Deed of Absolute Sale covering the lot:
xxx
For and in consideration of the sum of EIGHT MILLION
PESOS (P8,000,000.00), Philippine Currency, receipt of which in
full is hereby acknowledged by the VENDOR from the VENDEE,
the VENDOR sells, transfers and conveys unto the VENDEE, his
heirs, successors and assigns, the said parcel of land, together
with the improvements existing thereon, free from all liens and
34
encumbrances. (Emphasis supplied)
Deed of Absolute Sale covering the furnishings:
xxx
For and in consideration of the sum of TWO MILLION EIGHT
HUNDRED THOUSAND PESOS (P2,800,000.00), Philippine
Currency, receipt of which in full is hereby acknowledged by the
VENDOR from the VENDEE, the VENDOR sells, transfers and
conveys unto the VENDEE, his heirs, successors and assigns, the
said furnitures, fixtures and other movable properties thereon,
35
free from all liens and encumbrances. (Emphasis supplied)
However, on the agreed date, Chua refused to pay the

balance of the purchase price as required by the contract to
sell, the signed Deeds of Sale, and Article 1582 of the Civil
Code. Chua was therefore in default and has only himself
to blame for the rescission by ValdesChoy of the contract
to sell.
______________
34 Exhibit “B,” Records, pp. 5153.

35 Exhibit “C,” Records, pp. 5454(A).
73
VOL. 401, APRIL 9, 2003 73

Even if measured under existing usage or custom, Valdes

Choy had all her papers “in proper order.” Article 1376 of
the Civil Code provides that:
Art. 1376. The usage or custom of the place shall be borne in mind
in the interpretation of the ambiguities of a contract, and shall fill
the omission of stipulations which are ordinarily established.
Customarily, in the absence of a contrary agreement, the

submission by an individual seller to the buyer of the
following papers would complete a sale of real estate: (1)
36
36
owner’s duplicate copy of the Torrens title; (2) signed deed
of absolute sale; (3) tax declaration; and (3) latest realty tax
receipt. The buyer can retain the amount for the capital
gains tax and pay it upon authority of the seller, or the
seller can pay the tax, depending on the agreement of the
parties.
The buyer has more interest in having the capital gains
tax paid immediately since this is a prerequisite to the
issuance of a new Torrens title in his name. Nevertheless,
as far as the government is concerned, the capital gains tax
remains a liability of the seller since it is a tax on the
seller’s gain from the sale of the real estate. Payment of the
capital gains tax, however, is not a prerequisite to the
transfer of ownership to the buyer. The transfer of
ownership takes effect upon the signing and notarization of
the deed of absolute sale.
______________
36 Section 53 of PD No. 1529 provides:
Section 53. Presentation of owner’s duplicate upon entry of new certificate.—No

voluntary instrument shall be registered by the Register of Deeds, unless the
owner’s duplicate certificate is presented with such instrument, except in cases
expressly provided for in this Decree or upon order of the court, for cause shown.
The production of the owner’s duplicate certificate, whenever any voluntary
instrument is presented for registration, shall be conclusive authority from the
registered owner to the Register of Deeds to enter a new certificate or to make a
memorandum of registration in accordance with such instrument, and the new
certificate or memorandum shall be binding upon the registered owner and upon
all persons claiming under him, in favor of every purchaser for value and in good
faith.
x x x.
74

The recording
37
of the sale with the proper Registry of
Deeds and the transfer of the certificate of title in the
name of the buyer are necessary 38
only to bind third parties
to the transfer of ownership. As between the seller and
the buyer, the transfer of ownership takes effect upon the
execution
39
of a public instrument conveying the real
estate. Registration of the sale with the Registry of Deeds,
or the issuance of a new certificate of title, does not confer
ownership on the buyer. Such registration or issuance of a
new certificate
40
of title is not one of the modes of acquiring
ownership.
In this case, ValdesChoy was ready, able and willing to
submit to Chua all the papers that customarily would
complete the sale, and to pay as well the capital gains tax.
On the other hand, Chua’s condition that a new TCT be
first issued in his name before he pays the balance of
P10,215,000.00, representing 94.58% of the purchase price,
is not customary in a sale of real estate. Such a condition,
not specified in the contract to sell as evidenced by the
Receipt, cannot be considered part of the “omissions of
stipulations
41
which are ordinarily established” by usage or
custom. What is increasingly becoming customary is to
deposit in escrow the balance of the purchase price pending
the issuance of a new certificate of title in the name of the
buyer. ValdesChoy suggested this solution but
unfortunately, it drew no response from Chua.
Chua had no reason to fear being swindled. ValdesChoy
was prepared to turnover to him the owner’s duplicate
copy of the TCT, the signed Deeds of Sale, the tax
declarations, and the latest realty tax receipt. There was no
hindrance to paying the capital gains tax as Chua himself
had advanced the money to pay the same and ValdesChoy
had procured a manager’s check payable to the Bureau of
Internal Revenue covering the amount. It was only a
matter of time before the capital gains tax would be paid.
Chua acted precipitately in filing the action for specific
performance a mere
______________
37 Garcia v. Court of Appeals, G.R. Nos. L48971 and 49011, 22 January

1980, 95 SCRA 380.
38 Sections 51 and 52, Property Registration Decree (PD No. 1529).
39 Sapto v. Fabiana, 103 Phil. 658 (1958); Abuyo, et al. v. De Suazo, 124
Phil.1138 (1966); Philippine Suburban Development Corp. v. Auditor
General, G.R. No. L19545, 18 April 1975, 63 SCRA 397.
40 Bollozos v. Yu Tieng Su, G.R. No. L29442, 11 November 1987, 155
SCRA 506.
41 Mirasol v. Yusay, et al., 120 Phil. 407; 11 SCRA 410 (1964).
75
VOL. 401, APRIL 9, 2003 75

two days after the deadline of 15 July 1989 when there was
an impasse. While this case was dismissed on 22 November
1989, he did not waste any time in refiling the same on 29
November 1989.
Accordingly, since Chua refused to pay the consideration
in full on the agreed date, which is a suspensive condition,
Chua cannot compel ValdesChoy to consummate the sale
of the Property. Article 1181 of the Civil Code provides that
—
ART. 1181. In conditional obligations, the acquisition of rights, as

well as the extinguishment or loss of those already acquired shall
depend upon the happening of the event which constitutes the
condition.
Chua acquired no right to compel ValdesChoy to transfer

ownership of the Property to him because the suspensive
condition—the full payment of the purchase price—did not
happen. There is no correlative obligation on the part of
ValdesChoy to transfer ownership of the Property to Chua.
There is also no obligation on the part of ValdesChoy to
cause the issuance of a new TCT in the name of Chua since
unless expressly stipulated, this is not one of the
obligations of a vendor.
WHEREFORE, the Decision of the Court of Appeals in
CAG.R. CV No. 37652 dated 23 February 1995 is
AFFIRMED in toto.
SO ORDERED.
Davide, Jr. (C.J., Chairman), Vitug, Ynares

Santiago and Azcuna, JJ., concur.
Judgment affirmed in toto.
Note.—Transfer of title or an agreement to transfer it

for a price paid or promised to be paid is the essence of sale.
(Commissioner of Internal Revenue vs. Court of Appeals,
271 SCRA 605 [1997])
——o0o——
76
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10/21/2018 SUPREME COURT REPORTS ANNOTATED VOLUME 401

54 SUPREME COURT REPORTS ANNOTATED

TOMAS K. CHUA, petitioner, vs. COURT OF APPEALS

Civil Procedure; Pleadings and Practice; Appeals; An issue not

price. The earnest money forms part of the consideration only if

VOL. 401, APRIL 9, 2003 55

Chua vs. Court of Appeals

seller becomes obligated to transfer the ownership of the thing

of a new Torrens title in his name. Nevertheless, as far as the

PETITION for review on certiorari of a decision of the

The facts are stated in the opinion of the Court.

56 SUPREME COURT REPORTS ANNOTATED

Valdes­Choy advertised for sale her paraphernal house and

RECEIVED from MR. TOMAS K. CHUA PBCom

1 In CA­G.R. CV No. 37652, dated 23 February 1995, penned by

VOL. 401, APRIL 9, 2003 57

The balance of TEN MILLION SEVEN HUNDRED

In the morning of 13 July 1989, Chua secured from

5 The typewritten figure “30” was corrected in ink to “15”.

58 SUPREME COURT REPORTS ANNOTATED

July 14, 1989

Received from MR. TOMAS K. CHUA PBCom. Check No. 325851

SELLING PRICE P10,800,000.00

PLUS P80,000.00 for documentary

On the same day, 14 July 1989, Valdes­Choy, accompanied

VOL. 401, APRIL 9, 2003 59

des­Choy. Chua required that the Property be registered

of title is transferred in the name of the buyer before she is

“Applying the provisions of Article 1191 of the new Civil Code,

I. 1. Ordering the defendant to deliver to the Court not later

14 TSN, 25 January 1990, p. 226.

60 SUPREME COURT REPORTS ANNOTATED

a. the owner’s duplicate copy of TCT No. 162955

2. Within five (5) days from compliance by the

a. to make representations with the BIR for the

4. Should the defendant fail or refuse to surrender the

a. the sum of P100,000.00 representing moral and

6. Authorizing the Branch Clerk of Court of this Court

VOL. 401, APRIL 9, 2003 61

a. the capital gains tax paid to the BIR;

8. Ordering the defendant to surrender to the plaintiff or his

II. In the event that specific performance cannot be done for

1. To refund to the plaintiff the earnest money in the sum of

Valdes­Choy appealed to the Court of Appeals which

“WHEREFORE, the decision appealed from is hereby REVERSED

(1) Dismissing Civil Case No. 89­5772;

18 Rollo, pp. 71­72.

62 SUPREME COURT REPORTS ANNOTATED

Chua vs. Court of Appeals

Hence, the instant petition.

The Trial Court’s Ruling

The trial court found that the transaction reached an

VOL. 401, APRIL 9, 2003 63

trial court concluded that these documents were all useless

The Court of Appeals’ Ruling

In reversing the trial court, the Court of Appeals ruled that

In his Memorandum, Chua raises the following issues:

64 SUPREME COURT REPORTS ANNOTATED

1. WHETHER THERE IS A PERFECTED

The issues for our resolution are: (a) whether the

ValdesChoy advertised for sale her paraphernal house and

1 In CAG.R. CV No. 37652, dated 23 February 1995, penned by

On the same day, 14 July 1989, ValdesChoy, accompanied

desChoy. Chua required that the Property be registered

ValdesChoy appealed to the Court of Appeals which

(1) Dismissing Civil Case No. 895772;

18 Rollo, pp. 7172.

ValdesChoy received PBCom Check No. 206011 for

capital gains tax is for the account of ValdesChoy; and (3)

Chua’s new theory is not well taken in light of wellsettled

the Property was retained by ValdesChoy and was not to

ValdesChoy failed to show that the capital gains tax had

30 Roque v. Lapuz, G.R. No. L32811, 31 March 1980, 96 SCRA 741.

32 Rollo, pp. 6061.

34 Exhibit “B,” Records, pp. 5153.

Even if measured under existing usage or custom, Valdes

37 Garcia v. Court of Appeals, G.R. Nos. L48971 and 49011, 22 January

Chua acquired no right to compel ValdesChoy to transfer

Davide, Jr. (C.J., Chairman), Vitug, Ynares