In Cebu Winland Development Corporation v. Ong Siao Hua, the Supreme Court clarified that the prescriptive period for actions arising from discrepancies in real estate sales (specifically regarding area) begins not from the transfer of possession alone, but from the transfer of ownership. This means that if a buyer takes possession of a property but the seller retains ownership until full payment and execution of the deed of sale, the six-month prescriptive period under Article 1543 of the Civil Code does not start until ownership is actually transferred. The ruling underscores the importance of distinguishing between possession and ownership in determining the commencement of prescriptive periods in sales contracts.

Possession Without Ownership: When Does the Clock Start Ticking on Real Estate Disputes?

Cebu Winland Development Corporation offered Ong Siao Hua condominium units and parking slots with a promotional discount. Ong accepted, paying a down payment and agreeing to monthly installments. After full payment and taking possession, Ong discovered the units were smaller than advertised, leading to a dispute over excess payments. Cebu Winland argued Ong’s claim was time-barred under Article 1543 of the Civil Code, which prescribes a six-month period from the date of delivery to bring actions related to discrepancies in real estate sales. The central legal question was whether the transfer of possession alone constituted “delivery” for the purpose of triggering this prescriptive period, or whether “delivery” required the transfer of both possession and ownership.

The Supreme Court emphasized that, under the Civil Code, a vendor is obligated to transfer ownership and deliver the thing sold. Citing Articles 1495 and 1496, the Court underscored that ownership is acquired by the vendee upon delivery, which can occur through various means outlined in Articles 1497 to 1501. The crucial aspect of delivery is that it signifies the passing of title from the seller to the buyer. Manresa, a respected civil law commentator, supports this view, noting that “the delivery of the thing . . . signifies that title has passed from the seller to the buyer.” Tolentino adds that delivery serves not only for the enjoyment of the thing but also as a mode of acquiring dominion, marking the birth of a real right. Thus, the act of delivery, regardless of its form, signifies the transfer of ownership from the vendor to the vendee.

The Court distinguished between real or actual delivery (Article 1497) and symbolic delivery through the execution of a public instrument (Article 1498). However, it clarified that Article 1498 does not create an irrebuttable presumption of delivery. The presumption can be challenged by evidence showing the vendee’s failure to take actual possession. As the Supreme Court explained in Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., delivery is a composite act requiring the concurrence of both parties:

Delivery has been described as a composite act, a thing in which both parties must join and the minds of both parties concur. It is an act by which one party parts with the title to and the possession of the property, and the other acquires the right to and the possession of the same. In its natural sense, delivery means something in addition to the delivery of property or title; it means transfer of possession. In the Law on Sales, delivery may be either actual or constructive, but both forms of delivery contemplate “the absolute giving up of the control and custody of the property on the part of the vendor, and the assumption of the same by the vendee.”

The High Court stated that, “delivery’ as used in the Law on Sales refers to the concurrent transfer of two things: (1) possession and (2) ownership.” This perspective explains why the presumptive delivery via a public instrument is negated when the vendee fails to obtain material possession. Similarly, when the vendee receives possession but the vendor retains ownership until full payment, the transfer of possession alone does not constitute “delivery” as contemplated in Article 1543 of the Civil Code.

In Ong’s case, while possession was transferred, the deeds of absolute sale were pending execution upon final payment, indicating Cebu Winland’s retention of ownership. This aligned with jurisprudence establishing that parties must intend to immediately transfer ownership for delivery to occur. Thus, the Court concluded that the transfer of possession on October 10, 1996, did not equate to “delivery” under Article 1543, meaning Ong’s action had not prescribed since ownership had not yet transferred. The Court then addressed whether the sale was based on a stated area or for a lump sum.

The Supreme Court referenced Article 1539 of the Civil Code, which applies when real estate is sold with a statement of its area at a certain price per unit. In such cases, the vendor must deliver all that was stated in the contract. If this is not possible, the vendee can choose between a proportional reduction of the price or rescission of the contract. Article 1542, on the other hand, applies to sales of real estate for a lump sum, where the price remains the same regardless of variations in area.

The Supreme Court, citing Manresa, explained the distinction:

. . . If the sale was made for a price per unit of measure or number, the consideration of the contract with respect to the vendee, is the number of such units, or, if you wish, the thing purchased as determined by the stipulated number of units. But if, on the other hand, the sale was made for a lump sum, the consideration of the contract is the object sold, independently of its number or measure, the thing as determined by the stipulated boundaries, which has been called in law a determinate object.

The Supreme Court found the sale to Ong was based on a price per square meter, making Article 1539 applicable, entitling Ong to either a proportional price reduction or rescission. While the Court of Appeals correctly found that Ong’s action had not prescribed, it erred in reinstating the Board’s decision to grant rescission based on Articles 1330 and 1331 of the Civil Code (mistake as a ground for annulment of contract). The error in size was not significant enough to vitiate the contract, as Ong continued to occupy the property and sought only a refund. Therefore, the Supreme Court modified the Court of Appeals’ decision, denying rescission and ordering Cebu Winland to refund Ong the excess payment, plus legal interest.

FAQs

What was the key issue in this case?	The key issue was whether the prescriptive period for actions regarding discrepancies in real estate area begins from the transfer of possession or the transfer of ownership.
What did the Supreme Court decide about the meaning of ‘delivery’?	The Supreme Court clarified that “delivery” in the context of sales contracts refers to the concurrent transfer of both possession and ownership, not just possession alone.
When does the prescriptive period under Article 1543 of the Civil Code begin?	The prescriptive period begins from the date of delivery, which, in this context, means the date when both possession and ownership are transferred to the buyer.
What is the difference between a sale by unit and a sale for a lump sum?	A sale by unit is when the price is calculated based on a certain amount per unit of measure (e.g., per square meter), while a sale for a lump sum is when a fixed price is agreed upon regardless of the exact area.
Which article of the Civil Code applies when there is a discrepancy in the area of the property sold by unit?	Article 1539 of the Civil Code applies in cases where the sale is made with a statement of its area, at the rate of a certain price for a unit of measure or number.
What remedies are available to the buyer if the property area is less than what was stated in the contract?	Under Article 1539, the buyer can choose between a proportional reduction of the price or rescission of the contract, provided that the lack in area is not less than one-tenth of that stated.
Can a buyer seek rescission of a contract due to a mistake in the property’s area?	A buyer can only seek rescission based on mistake if the mistake is material and goes to the essence of the contract, meaning the buyer would not have entered into the contract had they known of the true area.
What was the final order of the Supreme Court in this case?	The Supreme Court ordered Cebu Winland to refund Ong Siao Hua the amount representing the proportional reduction of the price, with legal interest from the date of judicial demand.

This case clarifies a crucial aspect of real estate transactions: the importance of distinguishing between possession and ownership when determining the start of prescriptive periods for legal actions. Buyers should be aware that taking possession of a property does not automatically trigger the prescriptive period if ownership has not yet been transferred. This ruling provides a clearer framework for resolving disputes related to discrepancies in property area and ensures fairer outcomes for both buyers and sellers.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Cebu Winland Development Corporation v. Ong Siao Hua, G.R. No. 173215, May 21, 2009