POWER COMMERCIAL AND INDUSTRIAL CORPORATION v.

COURT OF APPEALS
G.R. No. 119745 | June 20, 1997

Petitioners: Power Commercial and Industrial Corp.

Respondents: Court of Appeals and Spouses Reynaldo & Angelita R. Quiambao and Philippine National Bank

Ponente: Panganiban, J.

DOCTRINE: When buyer assumes risk of ownership and possession, such as in the case at bar where the buyer-
corporation knew of the presence of the lessees/occupants in the subject lot, it cannot thereafter ask for rescission of
the contract for the alleged “failure” of the seller-spouses to eject the said lessees/occupants. The key word is
“control” not “possession of the land”. In order that the symbolic delivery may produce the effect of tradition, it is
necessary that the vendor have had such control over the thing sold that its material delivery could have been made.
The thing sold must be placed in his control. It is not enough to confer upon the purchase just the ownership and
the right of possession. In this case, the buyer-corporation had control over the lot as evidenced by the subsequent
filing by the buyer-corporation of the ejectment suit.

FACTS:
Buyer-corporation, Power Commercial & Industrial Development Corporation, is an industrial asbestos manufacturer
who needed a bigger office space and warehouse for its products.

Thus, buyer-corporation entered into a contract of sale with seller-spouses Quiambao for the latter’s 612 sq.m. parcel
of land located at the corner of Bagtican & St. Paul Streets, San Antonio Village, Makati City.

TERMS & CONDITIONS OF THE SALE.

(1) Buyer-corporation would pay a down payment of P108,000.00 and the balance of P295,000.00 is to be paid
upon the execution of the deed of transfer.
(2) Buyer-corporation shall assume the existing mortgage on the land as part of the purchase price.

Buyer-corporation, in payment of the purchase price, paid P79,145.77 to PNB, the bank-mortgagee.

Later on, the seller-spouses again mortgaged the land to the bank-mortgagee to guarantee a loan of P145,000.00,
P80,000.00 of which was paid to the seller-spouses. The buyer-corporation agreed to assume payment of the loan.

Thereafter, the parties executed a Deed of Absolute Sale with Assumption of Mortgage. The General Manager of
the buyer-corporation, Mrs. C.D. Constantino, then submitted to the bank-mortgagee said deed with a formal
application for assumption of mortgage.

However, due to the failure of the buyer-corporation to submit the necessary papers for approval, the application for
assumption of mortgage was considered withdrawn, and the outstanding balance of P145,000.00 became fully due &
demandable, payable within fifteen (15) days from notice.

Buyer-corporation paid the bank-mortgagee a total of P62,163.59 to be applied to the outstanding loan and sent a
letter to the bank-mortgagee requesting that their application for the assumption of mortgage be given favorable
consideration and the mortgage & title be transferred on the buyer-corporation’s name so that they may undertake
the necessary procedures to eject the lessees/occupants thereof.

The bank-mortgagee replied, requesting the buyer-corporation to remit payments to cover interest, charges, and at
least part of the principal as it has been due from its last maturity.

Buyer-corporation filed an action for rescission and damages, demanding the return of the payments it made on the
ground that the assumption of mortgage was never approved.
o Specifically, the buyer-corporation was alleging that (1) there was a substantial breach of the
contract warranting rescission; (2) there was a mistake in payment and the bank-mortgagee is
therefore obliged to return the payments.

While the case was pending, the mortgage was foreclosed, and the bank-mortgagee subsequently bought the subject
lot during the public auction.

PROCEDURAL HISTORY:
REGIONAL TRIAL COURT. In favor of buyer-corporation. The failure of the seller-spouses Quiambao to deliver
actual possession to the buyer-corporation entitled the latter to rescind the sale, and in view of such failure & the
denial of the buyer-corporation’s assumption of mortgage, the bank-mortgagee, PNB, was obliged to return the
payments made by the buyer-corporation.

COURT OF APPEALS. In favor of seller-spouses. Reversed the decision of the lower court. The deed of sale
between the buyer-corporation and the seller-spouses did not obligate the seller-spouses to eject the lessees from
the land in question as a condition of the sale, nor was the occupation thereof by said lessees a violation of the
warranty against eviction. Hence, there was no substantial breach to justify the rescission of said contract or the
return of the payments made.

SUPREME COURT. In favor of seller-spouses. Affirmed the decision of the lower court and upheld the validity of
the contract of sale with assumption of mortgage—absolving the bank-mortgagee from the liability of returning the
mortgage payments already made.

ISSUES:
Whether or not there was a constructive delivery effected through the execution of the deed of sale even though the
seller-spouses could not transfer the possession of the subject lot due to the presence of the lessees/occupants
thereof and therefore the buyer-corporation was not in actual possession of the thing sold? (YES)

HELD:
YES, there was a constructive delivery at the execution of the deed even when the buyer was not in actual
possession of the lot because of the lessees/occupants.

The Civil Code provides that delivery can either be actual (Article 1497) or constructive (Articles 1498-1501).
Symbolic delivery, under Article 1498, is a species of constructive delivery which effects the transfer of ownership
through the execution of a public document.

The key word is “control” not “possession of the land”. In order that the symbolic delivery may produce the effect of
tradition, it is necessary that the vendor have had such control over the thing sold that its material delivery could
have been made. The thing sold must be placed in his control. It is not enough to confer upon the purchase just
the ownership and the right of possession.

WHEN SYMBOLIC THROUGH THE EXECUTION OF A PUBLIC INSTRUMENT SUFFICIENT; EFFECTIVE

DELIVERY. When there is no impediment whatever to prevent the thing sold passing into the tenancy of the
purchaser by the sole will of the vendor. In this case, the legal fiction of symbolic delivery does not yield to the
truth and the delivery has already been effected.

WHEN SYMBOLIC THROUGH THE EXECUTION OF A PUBLIC INSTRUMENT NOT SUFFICIENT; NO EFFECTIVE
DELIVERY. When the purchaser, despite the execution of the instrument cannot have the enjoyment and material
tenancy of the thing and make use of it or himself or through another in his name, because such tenancy and
enjoyment are opposed by the interposition of another will. Here, the legal fiction yields to reality and the delivery
has not been effected.

In the case at bar, the symbolic delivery through the execution of a public instrument was sufficient. Legal fiction did
not yield to reality as the subject lot has been placed under the control of the buyer-corporation, as evidenced by the
subsequent filing by the buyer-corporation of the ejectment suit. This signified that the buyer-corporation as the new
owner intended to obtain for itself, and to terminate said lessees/occupants’ actual possession thereof.

Moreover, the deed of sale between the parties did not stipulate nor infer otherwise that the failure of the seller-
spouses to eject the lessees/occupants from the lot in question will not be considered as effective delivery. Prior
physical delivery or possession is not legally required, and the execution of the deed of sale is deemed to be
equivalent to delivery. This deed operates as a formal or symbolic delivery of the property sold and authorizes the
buyer to use the document as proof of ownership. Nothing more is required.

Lastly, the buyer-corporation was well aware of the presence of the lessees/occupants at the time it entered into the
sales contract. The buyer-corporation’s counsel even undertook the job of ejecting the squatters and even filed suit to
eject them. In its letter to the bank-mortgagee, the buyer-corporation admitted that it was the “buyer(s) and new
owner(s) of this lot”.

OTHER ISSUES:
CONSPICUOUS ABSENCE OF AN IMPOSED CONDITION. The buyer-corporation was alleging that the failure of
the seller-spouses to eject the lessees/occupants was a substantial breach of their contract which warrants
rescission.
It is not a substantial breach because (1) such failure was not stipulated as a condition, whether
resolutory/suspensive; (2) its effects & consequences were not specified either. Absent a stipulation, the Court cannot
say that the parties intended to make its nonfulfillment a ground for rescission.

Moreover, the provision adverted to in the contract pertains to the usual warranty against eviction, not to a condition
that was not met. The terms of the contract were clear as to leave no room for any other interpretation and even if
there was any obscurity, it must be construed against the buyer-corporation as it was the party who caused such
obscurity when it omitted the alleged condition when its lawyer drafted the contract.

REQUISITES OF BREACH OF WARRANTY AGAINST EVICTION. A breach of warranty requires the concurrence of
the following:
(1) The purchaser has been deprived of the whole or part of the thing sold;
(2) This eviction is by a final judgment;
(3) The basis thereof is by virtue of a right prior to the sale made by the vendor;
(4) The vendor has been summoned and made co-defendant in the suit for eviction at the instance of the
vendee.
In this case, the presence of lessees/occupants did not constitute an encumbrance of the land, nor did it deprive the
buyer-corporation control thereof. The deprivation of ownership & control only occurred when the buyer-corporation
failed and/or discontinued paying the amortizations on the mortgage—causing it to be foreclosed & sold at public
auction. However, this is due to the buyer-corporation’s fault, not attributable to the seller-spouses. Hence, the
contract is presumed to be valid and subsisting.

ABSENCE OF MISTAKE IN PAYMENT. Solutio indebiti does not apply to this case. The requisites of solution indebiti
are:
(1) Payment is made when there exists no binding relation between the payor, who has no duty to pay and the
person who received the payment;
(2) Payment is made through mistake, not through liberality or some other cause.
In this case, buyer-corporation was under obligation to pay amortizations on the mortgage under the contract of sale
& the deed of real estate mortgage. Therefore, it cannot be said that it had no duty to pay the bank-mortgagee.
Moreover, it cannot be a mistake because the bank-mortgagee disapproved its assumption of mortgage.

Even if the buyer-corporation was a third party with regard to the mortgage of the land purchased, the payment of
the loan was a condition clearly imposed by the contract of sale—disproving that there was a mistake in payment.
The buyer-corporation was required to protect its interest as the buyer and new owner of the lot by paying the bank-
mortgagee.

The quasi-contract of solution indebiti is a concrete manifestation of the ancient principle that no one shall enrich
himself unjustly at the expense of another. However, there is no unjust enrichment here as the transaction in this
case was quid pro quo, value for value.

DISPOSITION:
WHEREFORE, the petition is hereby DENIED, and the assailed Decision is AFFIRMED.

NOTES:
VILLANUEVA NOTES. The Addison doctrine was reiterated in Power Commercial and Industrial Corporation v. Court
of Appeals, where the Court emphasized that the operative word in the doctrine is not “possession” but “control”. In
Power Commercial, the buyer was fully aware of the existence of squatters on the property at the time of the
transactions and even undertook the job of evicting them. The Court held that the buyer cannot contend later on that
the execution of the deed of sale in a public document did not operate as a symbolic delivery to transfer possession
to the buyer due to the presence of occupants on the lot sold, thus:

Nevertheless, the statement in Power Commercial that “our law does not admit the doctrine of transfer of property by
mere consent”, is not accurate since under Article 1496 of the Civil Code, the ownership of the thing sold is acquired
by the buyer from the moment it is delivered to him in any of the ways specified by law, “or in any other manner
signifying an agreement that the possession is transferred from the vendor to the vendee.” As discussed hereunder,
tradition longa manu and other forms of symbolic delivery involve a mere agreement that buyer is not the owner and
possessor of the subject matter.

CONTESTED PROVISION; NOT A CONDITION BUT A USUAL WARRANTY AGAINST EVICTION. "We hereby also
warrant that we are the lawful and absolute owners of the above described property, free from any lien and/or
encumbrance, and we hereby agree and warrant to defend its title and peaceful possession thereof in favor of the
said Power Commercial and Industrial Development Corporation, its successors and assigns, against any claims
whatsoever of any and all third persons; subject, however, to the provisions hereunder provided to wit."